Example of a Future Project

For example, consider a four-month future project that has forecast benefits and costs as shown in Example of a Future Project and an annual discount rate of 6%, equivalent to a monthly rate of 0.5% or .005.

Table A-1. Example of NPV calculation

Month	Forecast Benefit	Forecast Cost	Forecast Benefit – Forecast Cost (Forecast Nominal Return)
May 2012	$100,000	$90,000	$10,000
June 2012	$120,000	$90,000	$30,000
July 2012	$140,000	$40,000	$100,000
August 2012	$140,000	$5,000	$135,000

As of March 2012, two months before the project starts, the total NPV is the sum of the following amounts (rounding off to the nearest dollar):

• $10,000 / (1.005) ² = $9,901 for May

• $30,000 / (1.005) ³ = $29,554 for June

• $100,000 / (1.005) ⁴ = $98,025 for July

• $135,000 / (1.005) ⁵ = $131,675 for August

For this example, the total NPV is $269,155.

The total forecast nominal return for the four project months is $275,000.