Cisco Cisco 4402 Wireless LAN Controller White Paper
Total Economic Impact Study of Unified Wireless Network
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Appendix B: Glossary
Discount rate: The interest rate used in cash flow analysis to take into account the time value of
money. Although the Federal Reserve Bank sets a discount rate, companies often set a discount
rate based on their business and investment environment. Forrester assumes a yearly discount rate
of 10% for this analysis. Organizations typically use discount rates between 8% and 16% based on
their current environment. Readers are urged to consult their organization to determine the most
appropriate discount rate to use in their own environment.
money. Although the Federal Reserve Bank sets a discount rate, companies often set a discount
rate based on their business and investment environment. Forrester assumes a yearly discount rate
of 10% for this analysis. Organizations typically use discount rates between 8% and 16% based on
their current environment. Readers are urged to consult their organization to determine the most
appropriate discount rate to use in their own environment.
Net present value (NPV): The present or current value of (discounted) future net cash flows given
an interest rate (the discount rate). A positive project NPV normally indicates that the investment
should be made, unless other projects have higher NPVs.
an interest rate (the discount rate). A positive project NPV normally indicates that the investment
should be made, unless other projects have higher NPVs.
Present value (PV): The present or current value of (discounted) cost and benefit estimates given
at an interest rate (the discount rate). The PV of costs and benefits feed into the total net present
value of cash flows.
at an interest rate (the discount rate). The PV of costs and benefits feed into the total net present
value of cash flows.
Payback period: The breakeven point for an investment, or the point in time at which net benefits
(benefits minus costs) equal initial investment or cost.
(benefits minus costs) equal initial investment or cost.
Return on investment (ROI): A measure of a project’s expected return in percentage terms. ROI is
calculated by dividing net benefits (benefits minus costs) by costs.
calculated by dividing net benefits (benefits minus costs) by costs.
A Note On Cash Flow Tables
The following is a note on the cash flow tables used in this study (see the Example Table below).
The initial investment column contains costs incurred at “time 0” or at the beginning of Year 1.
Those costs are not discounted. All other cash flows in Years 1 through 3 are discounted using the
discount rate shown in Table 2 at the end of the year. Present value (PV) calculations are
calculated for each total cost and benefit estimate. Net present value (NPV) calculations are not
calculated until the summary tables and are the sum of the initial investment and the discounted
cash flows in each year.
The initial investment column contains costs incurred at “time 0” or at the beginning of Year 1.
Those costs are not discounted. All other cash flows in Years 1 through 3 are discounted using the
discount rate shown in Table 2 at the end of the year. Present value (PV) calculations are
calculated for each total cost and benefit estimate. Net present value (NPV) calculations are not
calculated until the summary tables and are the sum of the initial investment and the discounted
cash flows in each year.
Example Table
Ref.
Category
Calculation
Initial cost
Year 1
Year 2
Year 3
Total
Source: Forrester Research, Inc.