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Monitoring & Evaluation: Net Present Value (NPV)

Net Present Value (NPV) is a method used to analyze the profitability of a project by calculating the difference between the present values of cash inflows and outflows. NPV takes into account the time value of money by discounting future cash flows. A positive NPV indicates that the projected revenues from a project exceed the costs, making the project profitable. An example calculation shows how to determine the present value of each cash flow and calculate the overall NPV of a project with an initial investment and subsequent yearly cash inflows over multiple periods.

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Mashood Rajput
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33 views

Monitoring & Evaluation: Net Present Value (NPV)

Net Present Value (NPV) is a method used to analyze the profitability of a project by calculating the difference between the present values of cash inflows and outflows. NPV takes into account the time value of money by discounting future cash flows. A positive NPV indicates that the projected revenues from a project exceed the costs, making the project profitable. An example calculation shows how to determine the present value of each cash flow and calculate the overall NPV of a project with an initial investment and subsequent yearly cash inflows over multiple periods.

Uploaded by

Mashood Rajput
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Monitoring & Evaluation

Net Present Value (NPV)

Sub: By Sub: To

Mashood-ur-Rehman (1619) Sir Saif-ur-Rehman


What is Net Present Value (NPV)?

The Net Present Value (NPV) is a measurement of profit calculated the


difference between present values (PV) of cash outflows from the present
values of cash inflows over a period of time.
Incoming and outgoing cash flows can also be described as benefit and cost
cash flows. NPV is used in capital budgeting to analyze the profitability of a
projected investment or project.
Advantages:

• direct measure of the dollar contribution to the stockholders.


• It reduce “time value of money”
• It look at whole project from start to finish
• Accurate profit & cross forecast is achieved

Disadvantages:

• The disadvantage is that the project size is not measured.


• Accuracy of result depend upon external factor, if actual rate is 15% and we took 15% it
is wrong.
Example:

$2000 $3000 $3000 $4000

0
1 2 Outflow 3 4

Inflow

-$9000
The following formula for calculating:

PV = present Value
FV = Future Value
I = Interest
N = numbers of period.

i = 10%
i=10%
F𝑽
PV= 𝟏+𝒊 𝒏

−9000
PV= → -9000
1+0.1 0

20,00
PV= → 1818.18
1+0.1 1

3000
PV= → 2479.34
1+0.1 2

3000
PV= → 2253.94
1+0.1 3

4,000
PV= → 2732.05
1+0.1 4

NPV= −9000+ (1818.18 + 2479.34 + 2253.94 + 2732.05)


NPV= 283.51
• Positive results means the combined PV of all cash inflow exceeds the PV of cash
outflow.
• This project is profitable for company.

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