NET PRESENT VALUE ANALYSIS FOR PROJECT X

Net Present Value Analysis for Project X
The first thing you will need to do is get an idea of your costs and
expected revenue for the project. You will need numbers for the
following:
• Development cost: the cost of your time
• Ramp Up Cost: the cost of starting full-scale production
• Marketing and Support Cost: the cost of getting the word out
and supporting users of the product
• Production Cost: the cost of manufacturing the product
• Sales revenues: how much it will cost the end customer
times the number of units sold
The next step is to figure out how far into the future you want to
estimate and in what increments. In this case, we’re going to go
three years into the future and calculate by quarter years.
Fill in the numbers for your estimates. This is information
that you can estimate yourself or get from other parts of
your company. Like everything, NPV goes through phases.
The numbers will vary over time as some costs go down
(development and ramp up) while others go up (marketing and
production).

---

Net Present Value Analysis for Project X
Extend your figures for the life of the entire project.
* This is really small due to the constraints of the page. See the
accompanying spreadsheet for full resolution. You’ll get the idea.
Now that you have figures for all of this, it’s time to collect them
and work the magic of NPV.
5.1 Add the Expenses and Incomes for each year of your
5.3 Divide the total of your income and expenditures (5.1)
analysis
by the hurdle rate of that year (5.2). This will give you
the net present value of that investment for the year.
5.2 Enter the hurdle rate ((1+rate)^year). It’s the rate at which
Add all of those up and you have the NPV for your
money depreciates. 10% is the rate you use there. Each
project.
year, that hurdle rate increases 10% from the previous

year’s rate, so it becomes cumulative. See the spreadsheet
for more detail.

---