Initiating and Selecting Projects

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Financial Projections

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Net Present Value

Higher NPV means

NPV =

Return on Investment

Required Rate of Return

Internal rate of return

Payback Analysis

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amount of time taken for net cash inflow to recoup the total money invested in the project - i.e. how much TIME until ACCRUED BENEFITS overtake ACCRUED CONTINUING COSTS. (i.e. cumulative benefits - cumulative costs = 0)

SPECIFIED by the organisaiton - minimum rate of return on investment

higher RETURN for project in comparison to the OPPORTUNITY COST of capital (return available from investing it elsewhere)

What DISCOUNT RATE results in an NPV of ZERO

Calculate expected monetary GAIN or LOSS from a project by DISCOUNTING all expected future cash inflows and outflows to the present point in time.

Total Discounted Benefits - Total Discounted Costs - discount factor 1/ (1+r) pwr t (no. years)

Difference in project COSTS and project BENEFITS divided by PROJECT COSTS - %, higher is better


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