Describe the steps to calculate NPV.

Question

Quizplus · Accepted Answer

The Answer is To calculate NPV, you first determine the total costs of the project each year and the total benefits each year over a set number of years. The second step in the process is to determine the interest or discount rate. This number is based on the cost of obtaining capital to fund the project or the amount of return an organization can get from other investment opportunities with similar risks. Next, you calculate the NPV using the following formula: NPV = Σt = 0 ... n = CF/(1 + i)^t, where t = year of the cash flow, n = last year of the cash flow, CF = cash flow at time t, i = interest rate or discount rate.

Describe the Steps to Calculate NPV