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Calculating Net Present Value (NPV)

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Ricky Smith CMRP, CMRT
Ricky Smith CMRP, CMRT

Ever wondered how to calculate net present value. This presentation provides the formula and example.

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CALCULATING NET PRESENT VALUE Presented by: Bill Keeter, Senior Technical Advisor i-presentation ReliabilityWeb.com
Introduction ,[object Object],[object Object],[object Object],[object Object]
What Happens to Money Time (Years) Value 0 $1 1 $1/$1*1.03 = $1/1.03 = $.971 2 $1/1.03*1.03 = $1/1.0609 = $.943 3 $1/1.0609*1.03 = $1/1.0927 = $.915 4 $1/1.0927*1.03 = $1/1.1255 = $.888 5 $1/1.1255*1.03 = $1/1.1592 = $.863 6 $1/1.1592*1.03 = $1/1.1940 = $.838 7 $1/1.1940*1.03 = $1/1.2298 = $.813 8 $1/1.2298*1.03 = $1/1.2667 = $.789 9 $1/1.2667*1.03 = $1/1.3047 = $.766 10 $1/1.3047*1.03 = $1/1.3428 = $.745
Discount Rate ,[object Object],[object Object]
The NPV Formula Net Present Value of a $10,000 Investment Discounted at 8% Period (Cost)/Revenue NPV Initial Investment ($10,000) ($10,000) 1 $5,000 $4,630 2 $5,000 $4,287 3 $5,000 $3,969 4 $5,000 $3,675 5 $5,000 $3,403 Total NPV $9,961
Thank You! ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

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Calculating Net Present Value (NPV)

  • 1. CALCULATING NET PRESENT VALUE Presented by: Bill Keeter, Senior Technical Advisor i-presentation ReliabilityWeb.com
  • 2.
  • 3. What Happens to Money Time (Years) Value 0 $1 1 $1/$1*1.03 = $1/1.03 = $.971 2 $1/1.03*1.03 = $1/1.0609 = $.943 3 $1/1.0609*1.03 = $1/1.0927 = $.915 4 $1/1.0927*1.03 = $1/1.1255 = $.888 5 $1/1.1255*1.03 = $1/1.1592 = $.863 6 $1/1.1592*1.03 = $1/1.1940 = $.838 7 $1/1.1940*1.03 = $1/1.2298 = $.813 8 $1/1.2298*1.03 = $1/1.2667 = $.789 9 $1/1.2667*1.03 = $1/1.3047 = $.766 10 $1/1.3047*1.03 = $1/1.3428 = $.745
  • 4.
  • 5. The NPV Formula Net Present Value of a $10,000 Investment Discounted at 8% Period (Cost)/Revenue NPV Initial Investment ($10,000) ($10,000) 1 $5,000 $4,630 2 $5,000 $4,287 3 $5,000 $3,969 4 $5,000 $3,675 5 $5,000 $3,403 Total NPV $9,961
  • 6.

Editor's Notes

  1. Welcome to our presentation on how to apply reliability statistics to improve asset management. This is the first in a continuing series of presentations designed to increase your knowledge about the use of statistical analysis to help improve performance. In this presentation we will define a few terms and discuss some commonly used reliability measures.