Net Present Value (NPV) is an approach used in capital budgeting where the present value of cash inflow is subtracted from the present value of cash outflows. You can use NPV to compare the value of a dollar today to the value of that same dollar in the future after taking inflation and return into account. If the NPV of a prospective investment is positive, accept it. If the NPV is negative, cash flows are negative, so you might consider rejecting the project.
With expressions, IBM® Rational® Focal Point™ automatically calculates NPV and alerts you if an investment can be rejected because it is not profitable.
Project Name | Opportunity Cost of Capital | CF today | CF Year 1 | CF Year 2 | CF Year 3 | CF Year 4 |
A | 6 | -200 | 0 | 0 | 220 | 220 |
B | 6 | -200 | 100 | 100 | 100 | 100 |
=-'CF today' + 'CF Year 1'/(1+'Opportunity Cost of Capital') + 'CF Year 2'/(1+'Opportunity Cost of Capital')**2 + 'CF Year 3'/(1+'Opportunity Cost of Capital')**3 + 'CF Year 4'/(1+'Opportunity Cost of Capital')**4
You can also change the Opportunity Cost of Capital attribute for all of the projects to point to the top folder Opportunity Cost of Capital by typing the following expression (use multi-edit):='Projects!Opportunity Cost of Capital'
Now you need to change only Opportunity Cost of Capital for the top folder, and that attribute will be updated automatically for the projects.
You can set Rational Focal Point to alert you when requirements are becoming too expensive.