PROJECT MANAGEMENT

NET PRESENT VALUE ANALYSIS

is a method of calculating the expected net gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time.

(NPV)

Steps to determine NPV

 Determine the cash inflows and outflows for the project.  Determine the discount rate.  Calculate the net present value.

 DISCOUNT RATE- is the minimum acceptable rate of return on an investment.  Discount factor-a multiplier for each year based on the discount rate and year

The mathematical formula for calculating NPV is: NPV=t=1...n A/(1+r)t

where t equals the yr of the cash flows, A is the amount of cash flow each yr, and r is the discount rate.

Example of Net Present Value:

2.
 Year1: discount factor=1/1=0.10)1=0.91  Year2: discount factor=1/1=0.10)2=0.83  Year3: discount factor=1/1=0.10)3=0.75  Year4: discount factor=1/1=0.10)4=0.68  Year5: discount factor=1/1=0.10)5=0.62