2. Definition
Net Present Value (NPV) is the
difference between the cash inflows
and the cash outflows of a capital
project.
Source: http://www.investopedia.com/terms/n/npv.asp
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3. Cross Referencing & Workings
1. Use a consistent format.
2. Ensure it is easy to follow.
3. Must be backed by clear assumptions and quotes.
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4. Costs To Include
1. Capital (CAPEX) directly attributable to the project.
2. Operational (OPEX) directly attributable to the
project.
3. Index costs if they are greater than 1 year.
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5. Costs Not To Include
1. Depreciation: It is not a cash flow.
2. Head Office Overhead Apportionment.
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6. What Is A NPV Cost Saving
Only a saving if it affects the whole Entity.
Do not include:
• Staff that are redeployed
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7. Simple Example
Simple NPV
200X Comment
Revenue £ 20.00 See working 1
Costs £ 10.00 See working 2
NPV £ 10.00
Workings
1 20 units at £1 per unit. Source Budget 200X page 3 from A Smith
2 5 units at £2 per unit. Source quote (page 2) from B Ltd
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8. NPV Flow Chart
Quotes
• Scan copy of quotes & estimates.
• Reference to workings & NPV.
Workings
• Calculations with sources.
• Reference to quotes & NPV.
NPV
• Contains all cash flow items.
• Reference to NPV & Quotes.
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