Net present value (NPV): An indicator to evaluate social and economic performance project

What is NPV? Net Present Value (NPV) is one of indicators used to evaluate the project performance of social and economic. 1. NPV (Net Present Value) – is an indicator that expresses the profit gaining after finishing payback, which means the result of total withdraws minus total invested capital. So we can say that NPV is the best indicator to evaluate the profitability of a project.
2. NPV is calculated by the following function: NPV:

In which: Rt = Withdraw capital in year t. Is calculated by Net profit + depreciation Ct = Invested capital in year t. i = Discount Rate. n = Number of investment year. 3. So when we use NPV indicator, it will show us the present value of cash flow after the payback. However this indicator also has some weaknesses as follows: (i) It does not clearly express how much profitability of the project that we are evaluating. Example: If we have 2 NPVs of correlative projects, so we have to consider which project will be selected. It does not guarantee that profitability of project 1 is larger than project 2 if NPV (project 1)>NPV (project 2). (ii)Although based on theory we know that the project with NPV indicator being larger than zero will be had profit, it does not guarantee that the project will be feasible. (iii)For the long - term investment project, NPV indicator is an option to evaluate the project most effectively. Because discount rate will change for a long time, so if we use IRR, we have to make adjustment to calculation for a right decision. However, NPV allows using multiple discount rates, it will not lead to the discrepancy in calculation. 4. Using NPV indicator to make a decision: When we evaluate a method to know if it can be applied for the project, we can use this indicator. More details are as follows: If NPV>0, The project has profit and The project can be accepted If NPV=0, The project doesn’t have profit and The project can be accepted. However we need to evaluate other indicators to make an exact decision. If NPV<0 data-blogger-escaped-...="" data-blogger-escaped-5.="" data-blogger-escaped-a="" data-blogger-escaped-accepted="" data-blogger-escaped-and="" data-blogger-escaped-as="" data-blogger-escaped-be="" data-blogger-escaped-by="" data-blogger-escaped-calculation="" data-blogger-escaped-can="" data-blogger-escaped-cannot="" data-blogger-escaped-easy="" data-blogger-escaped-evaluate="" data-blogger-escaped-excel="" data-blogger-escaped-for="" data-blogger-escaped-function.="" data-blogger-escaped-function:="" data-blogger-escaped-function="" data-blogger-escaped-href="http://ktxd.net/images/Bai1_NPV_2.jpg" data-blogger-escaped-imageanchor="1" data-blogger-escaped-in="" data-blogger-escaped-is="" data-blogger-escaped-lossed="" data-blogger-escaped-microsoft="" data-blogger-escaped-net="" data-blogger-escaped-npv:="" data-blogger-escaped-npv="" data-blogger-escaped-nvp="" data-blogger-escaped-present="" data-blogger-escaped-project="" data-blogger-escaped-pv="" data-blogger-escaped-rate="" data-blogger-escaped-rewrite="" data-blogger-escaped-supported="" data-blogger-escaped-the="" data-blogger-escaped-to="" data-blogger-escaped-understanding="" data-blogger-escaped-using="" data-blogger-escaped-value1="" data-blogger-escaped-value2="" data-blogger-escaped-value="" data-blogger-escaped-we="">

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