Net Positive Project and Net present value: Difference between pages

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''Sustainability.''
(NPV).
1.
The total present value of all of the cash flows of a proposal - both positive and negative.
For example the expected future cash inflows from an investment project LESS the initial capital investment outflow at Time 0.


(NPP).
For example a project requires an investment today of $100m, with $120m being receivable one year from now.


The Net Positive Project is an initiative in which member organisations commit to work towards creating "net positive" impacts on society, the environment and the global economy.
The cost of capital (r) is 10% per annum.
The NPV of the project is calculated as follows:


This is designed to be a more ambitious - but achievable - target than only avoiding making negative impacts.
PV of Time 0 outflow $100m = $(100m)
PV of Time 1 inflow $120m = $120m x 1.1<sup>-1</sup> = $109.09m
NPV = -$100m +$109.09m = +$9.09m


2.
In simple ''Net Present Value analysis'' the decision rule would be that all positive NPV opportunities should be accepted, and all negative NPV opportunities should be rejected. 
So the project in the example above would be accepted because its NPV is positive, namely +$9.09m.
However this assumes the unlimited availability of further capital with no increase in the cost of capital.
A more refined decision rule is that all negative NPV opportunities should still be rejected while all positive NPV opportunities remain eligible for further consideration (rather than automatically being accepted).


== See also ==
== See also ==
* [[Accounting for Sustainability]] (A4S)
* [[Capital rationing]]
* [[Bottom line]]
* [[Discounted cash flow]]
* [[Business & Sustainable Development Commission]]
* [[Internal rate of return]]
* [[Capital]]
* [[Investment appraisal]]
* [[Carbon footprint]]
* [[Present value]]
* [[Climate benchmark]]
* [[Residual theory]]
* [[Corporate social responsibility]]
   
* [[Environmental profit and loss]]
* [[ESG investment]]
* [[Financial capital]]
* [[Forum for the Future]]
* [[Global Sustainable Investment Alliance]]
* [[Human capital]]
* [[Manufactured capital]]
* [[Metaeconomics]]
* [[Natural capital]]
* [[Organic]]
* [[Reputational risk]]
* [[Social capital]]
* [[Stakeholder]]
* [[Sustainable Development Goals]] (SDGs)
* [[Sustainability]]
* [[Sustainability Accounting Standards Board]]
* [[Sustainability bond]]
* [[Sustainability Linked Loan Principles]]
* [[Sustainability reporting]]
* [[Sustainable finance]]
* [[Triple bottom line]]
* [[UK Sustainable Investment and Finance Association]]
 
 
== External link ==
 
*[https://www.netpositiveproject.org/ The Net Positive Project - About us]


[[Category:The_business_context]]

Revision as of 14:20, 23 October 2012

(NPV). 1. The total present value of all of the cash flows of a proposal - both positive and negative. For example the expected future cash inflows from an investment project LESS the initial capital investment outflow at Time 0.

For example a project requires an investment today of $100m, with $120m being receivable one year from now.

The cost of capital (r) is 10% per annum. The NPV of the project is calculated as follows:

PV of Time 0 outflow $100m = $(100m) PV of Time 1 inflow $120m = $120m x 1.1-1 = $109.09m NPV = -$100m +$109.09m = +$9.09m

2. In simple Net Present Value analysis the decision rule would be that all positive NPV opportunities should be accepted, and all negative NPV opportunities should be rejected. So the project in the example above would be accepted because its NPV is positive, namely +$9.09m.

However this assumes the unlimited availability of further capital with no increase in the cost of capital. A more refined decision rule is that all negative NPV opportunities should still be rejected while all positive NPV opportunities remain eligible for further consideration (rather than automatically being accepted).

See also


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