Project viability assessment through Net Present Value (NPV)

Abstract

The net present value (NPV) is a financial metric, widely used in project management to determine whether a given project is worth commencing (source). For a given project to be considered a profitable investment, a minimum requirement is that NPV > 0. (source) NPV is calculated by aggregating the streams of costs and benefits over a given time period associated with a project into a single value, making it easy to compare projects with one another. The central aspect of the NPV calculation involves assigning varying weights, dependent on time, to the benefits and costs through the utilization of the discount factor, where a discount rate is applied. The discount rate refers to the rate of interest that is used to discount all future costs and benefits.