This is a slide pack that explains the concept of NPV for new project managers.

1. Net Present Value For new project managers

2. Net present value can be tricky to learn, but it’s really very simple.

3. In this presentation I try to deliver an explanation of what it is

4. And how to use it.

5. Your feedback to this slide pack would be appreciated

6. Let’s get on with it…

7. What is Net Present Value?

8. What is Net Present Value?

9. What is Net Present Value? Net Present Value

10. Net Present Value Net present value ( NPV ) is a standard method for the financial appraisal of long-term projects.

11. Net Present Value Present value of net cash flows

12. What is it? Net Present Value Cash flow is discounted back to its present value (PV).

13. 2009 2008 2010 2011 2012 In today’s terms In today’s terms In today’s terms In today’s terms Revenues – Costs = ?

15. What is it? But what is it?

17. 2009 2008 2010 2011 2012 In today’s terms In today’s terms In today’s terms In today’s terms Revenues – Costs = ?

24. 2009 2008 2010 2011 2012 In today’s terms In today’s terms In today’s terms In today’s terms Revenues – Costs = ?

27. 2. Then they are summed. Year 1 + Year 2 + Year 3 + Year 4 + Etc ------------ = Sum

28. But what is the formula all about?

30. What is it? t the time of the cash flow

31. What is it? N the total time of the project

32. What is it? r the discount rate (the rate of return that could be earned on an investment in the financial markets with similar risk.)

39. Excel can help

40. NPV in excel Help menu “ NPV”

44. NPV in excel 

45. NPV in worksheets

47. When is NPV used?

51. When do you use it? Project 1 Project 2 Compare & Contrast Which one is best? Costs & Benefits Is it worth our investment?

52. Which is the better investment? http://www.flickr.com/photos/makz/56920649/ http://www.flickr.com/photos/f2g2/75152105/

53. Which was the better investment? http://www.flickr.com/photos/orangebrompton/1858900270/ http://www.flickr.com/photos/orangebrompton/1858900270/

54. Questions

55. What is the discount rate? What is IRR?

56. What is IRR? Internal Rate of Return

57. What is IRR? The amount you need to earn to make it all worthwhile

58. What is IRR? It is based on things like opportunity cost, the cost of money and risk

59. < 0 < NPV < 0 NPV = 0 NPV > 0 The investment’s return is less than the discounted cash threshold The investment’s return meets the discounted cash threshold The investment’s return exceeds the discounted cash threshold < 0 = 0 > 0

67. Another example Estimated costs; $1,750,000 in year 1 and $400,000 each year in years 2, 3 and 4. Estimated benefits; $0 in year 1, and $950,000 each year in years 2, 3, and 4. Use a 10 percent discount rate.

68. Another example Estimated costs; $2,500,000 in year 1 and $250,000 each year in years 2, 3 and 4. Estimated benefits; $0 in year 1, and $750,000 each year in years 2, 3, and 4. Use a 10 percent discount rate.