Avimanyu Datta

Time Value of Money based on: * Discounted Rate can be different for Benefits and Cost. We will assume they are same

Compute Present Value of Benefits  Given Net Economic Value (from year 1 onwards) = 40,000  Assume Discounted Rate is 10%  Assume Window of time frame is 5 years  Present Value of Benefits for year n= 40,000* (1/(0.1+1)^n). Thus, For Year 1 the value will be 40,000 *. 91 = For Year 2 the value will be 40,000 *.83 =

Compute Net Present Value of Benefits  For Year 0 NPV of Benefits = PV of Benefits.  For Year 1 and beyond NPV of Benefits can be computed using : NPV of Year N = NPV (n-1)+ PV (n) NPV = PVNPV (n) = NPV (n-1)+ PV (n)

Compute Present Value of Costs  Assume Fixed Cost =  Assume Window of time frame is 5 years  Recurring cost from Year 1 onwards =  Assume Discounted Rate is 10%  Present Value of Recurring for year n= 25,000* (1/(0.1+1)^n). Thus, For Year 1 the value will be 25,000 *.91 = For Year 2 the value will be 25,000 *.083 =

Compute Net Present Value of Costs  For Year 0 NPV of Costs = One Time Fixed Cost  For Year 1 and beyond NPV of Costs NPV of Cost for Year N = NPV (n-1)+ PV (n) NPV = One Time Cost NPV (n) = NPV (n-1)+ PV (n)

Overall NPV and Overall ROI  Overall NPV = NPV (benefits)- NPV (Costs)  Overall ROI = Overall NPV / NPV (Costs) NPV (benefits)- NPV (Costs)Overall NPV / NPV (Costs)

BreakEven Analysis  Yearly NPV Cash Flow: (PV of benefits - PV of recurring Costs)  Overall NPV Cash Flow: (NPV of all benefits- NPV of all Costs  Break Even Ratio Use the first year of positive cash flow to calculate the break even fraction : (Yearly NPV Cash Flow - Overall NPV Cash Flow)/ Yearly NPV Cash Flow

BreakEven Analysis (Yearly NPV Cash Flow - Overall NPV Cash Flow)/ Yearly NPV Cash Flow (PV of benefits - PV of recurring Costs) Overall NPV Cash Flow: (NPV of all benefits- NPV of all Costs)