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I´m doing a feasibility study to check the benefits of an investment in a certain tool. My table shows the savings and the costs in the project over 4 years. So, I´m trying to understand how to apply the Present Value and Net Present Value. I know the formulas, but i don´t know how to apply it in a real situation.

Should I:

  • Calculate the discount rates in every year of every item or;
  • Only in the Cash Flow Line or;
  • Only in the Total Savings and Total Costs line?

The table would be something like this. I applied the discount rate in the Cash Flow line (Savings-Costs). I´m considering the discount rate a given rate used by my company for this project:

Cash Flow Table

And, about the NPV, should I use the Cash Flow without the discount rate applied?

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    Hi @MarvMills, i updated the question. Hope it defines the problem better. – Bruno Estrazulas Aug 14 '15 at 15:25
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"Net" = "Total"

NPV = sum of all cash flows discounted to the present value. So in your example, assuming the project provides benefits all the way through year 4, you would sum all values in the Present Value row to derive the NPV.

Your NPV over 5 years should be: 32,874.04

Hope this isn't a homework question ;)

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It seems to me that all you need is a NPV (which is the PV of both costs and savings combined) by applying your discount rates to the cashflow value of each period.

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