Net Present Value (NPV)

Net present value (NPV) is total nominal return, discounted to its current value, based on a specified discount rate and the time allowed for the nominal return to be realized.

NPV is based on the financial summary. NPV is calculated using actual and forecast costs and benefits from all the months of the financial summary as described in Total Nominal Return.

For any particular future month:

NPV = (Nominal Return) / (1 + i/12) n

where

 n represents the number of periods (months) from the current month. Nominal Return is calculated for month n as described in Total Nominal Return. i represents the annual discount rate. For example, if the Discount Rate field (which by default is disabled) is specified as 6 to represent a 6% annual rate, the formula uses 0.06 for the value of i, then divides that by 12 to reflect the 12 months in a year.

PPM computes and reports total NPV, which is the sum of these values for all months—previous, current, and future—using each month's particular Nominal Return.

NPV for past and current months is meaningful for projects that are underway.

Only future months are discounted. Previous and current months use their Nominal Return values in calculating the sum.