Calculating Expected NPV

Annual cash flow

Annual cash flow

0
99999
 15%
Year-1 Year-2 Year-3
Cash flow Probability Exp cash flow Cash flow Probability Exp cash flowCash flow
10000 0.3 3000 10000 0.1 1000 10000
15000 0.4 6000 20000 0.2 4000 20000
20000 0.3 6000 30000 0.4 12000 30000
40000 0.3 12000
Expected/Average cash flow 15000 29000
PVIF@15% 0.8696 0.7561
Expected PV of cash flows 13043 21928
Total Expected PV of cash infl 47464
PV of cash outflows 42000
Expected NPV 5464

Year-1
Cash flow Probability Cum Probab Range
10000 0.3 0.3 0-2 3
15000 0.4 0.7 3-6 7
20000 0.3 1 7-9 10

Year-2 Simulation
Cash flow Probability Cum Probab Range Set-
10000 0.1 0.1 0 R. No
20000 0.2 0.3 1-2 Year-1 4
30000 0.4 0.7 3-6 Year-2 2
40000 0.3 1 7-9 Year-3 7

Less:
Year-3
Cash flow Probability Cum Probab Range
10000 0.3 0.3 0-2 Chance that the project could yield a nega
20000 0.5 0.8 3-7
 30000 0.2 1 8-9

Value Prob Cum Prob Range

1000 0.02 0.02 0-1999
1500 0.03 0.05 2000-4999
2000 0.15 0.20 5000-19999
2500 0.15 0.35 20000-34999
3000 0.30 0.65 35000-64999
3500 0.20 0.85 65000-84999
4000 0.15 1.00 85000-99999
Value Prob Cum Prob Range
3 years 0.05 0.05 0-4999
4 0.10 0.15 5000-14999
5 0.30 0.45 15000-44999
6 0.25 0.70 45000-69999
7 0.15 0.85 70000-84999
8 0.10 0.95 85000-94999
9 0.03 0.98 95000-97999
10 0.02 1.00 98000-99999
 Year-3
Probability Exp cash flow
0.3 3000
0.5 10000
0.2 6000

19000
0.6575
12493

Simulation Run-1 Simulation Run-2

Set-1 Set-2
Cash flow PVIF PV of cash flow R. No Cash flow PVIF
15000 0.8696 13043 7 20000 0.8696
20000 0.7561 15123 4 30000 0.7561
20000 0.6575 13150 9 30000 0.6575
PV of cash flows 41317 PV of cash flows
PV of cash outflows 42000 Less: PV of cash outflows
NPV -683 NPV

project could yield a negative NPV 60%

 Annual cash flow Project life
Random No Value Random No
Run-1 53479 3000 81874
Run-2 81115 3500 83339
Run-3 98036 4000 14988
Run-4 97344 4000 19839
Run-5 70328 3500 90630
Run-6 58116 3000 71863
Run-7 66023 3500 9337
Run-8 38277 3000 33435
Run-9 74523 3500 53869
Run-10 99776 4000 31151

Probability of NPV being positive is

Run-2 Simulation Run-3
Set-3
PV of cash flow R. No Cash flow PVIF PV of cash flow
17391 6 15000 0.8696 13043
22684 8 30000 0.7561 22684
19725 4 20000 0.6575 13150
59801 PV of cash flows 48878
42000 Less: PV of cash outflows 42000
17801 NPV 6878
Project life
Value PVIFA PV of cash inflow NPV
7 4.8684 14605 1605 0.513158118
7 4.8684 17039 4039
4 3.1699 12679 -321
5 3.7908 15163 2163
 8 5.3349 18672 5672
7 4.8684 14605 1605
4 3.1699 11095 -1905
5 3.7908 11372 -1628
6 4.3553 15243 2243
5 3.7908 15163 2163

of NPV being positive is 70%

 Simulation Run-4 Simulation Run-5
Set-4 Set-5
R. No Cash flow PVIF PV of cash flow R. No Cash flow
5 15000 0.8696 13043 0 10000
0 10000 0.7561 7561 1 20000
0 10000 0.6575 6575 3 20000
PV of cash flows 27180 PV of cash flows
Less: PV of cash outflows 42000 Less: PV of cash outflows
NPV -14820 NPV
 Simulation Run-5
Set-5
PVIF PV of cash flow
0.8696 8696
0.7561 15123
0.6575 13150
of cash flows 36969
of cash outflows 42000
-5031