ABSTRACT
This chapter provides a background to Net Present Value (NPV) modelling methods. It starts by explaining how to perform present value calculations and why they provide a robust basis for project financial appraisal. It also identifies why NPV methods are particularly useful during the earliest stages of a project; the time during which the fundamentally important decisions tend to be made. However, the limitations of NPV methods should also be understood. They are best suited to projects whose merits can be judged in financial terms and, as with any modelling methodology, there are limits to the accuracy of their results. The chapter ends by identifying the implications of these limitations
Let’s consider the following two opportunities:
1. Opportunity 1 – invest £10m today: investment matures at £13m two years later.
