The Refresher: Net Present Value

Harvard Business

Next time you’re deciding about a big investment, NPV can help you make a more informed decision. Finance & Accounting Video

Rethinking Valuation So You Don't Miss a Good Deal

Harvard Business Review

The higher level of uncertainty associated with H2 and H3 necessitates an updated valuation methodology that takes into account more than the net present value (NPV) of the target. The two together, NPV + OV, provide an inclusive but not inflated valuation. We find that this is rarely considered because it cannot be captured through a NPV analysis that is based on a linear set of projections, but an approximation of AV can often be captured using simple option pricing models.


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Will You Be Writing Off Your Investment in Egypt?

Harvard Business Review

Anyone who has had to make the argument for an investment knows the basic tool involved: a Net Present Value (NPV) calculation. The overall value of a foreign investment is equal to the NPV of the expected stream of profits for the life of the investment. Given that annual profit level and that discount rate, it is straightforward to calculate the NPV of such an infinitely lived foreign investment. Economy Global business Government NPV

A Refresher on Internal Rate of Return

Harvard Business Review

According to Knight, it’s commonly used by financial analysts in conjunction with net present value, or NPV. With NPV you assume a particular discount rate for your company, then calculate the present value of the investment ( more here on NPV ). Instead, you’ll have to use an iterative process where you try different hurdle rates (or annual interest rates) until your NPV is equal to zero. ” The downside is that IRR is much more conceptual than NPV.


What Happens When Features Are Dropped To Make a Launch Date?

The Idolbuster

Sabina explained that she felt “pressured to show there is value in doing the project, a positive NPV. Chapter 9: Paint Your Environment Part 7. Ever been on a project that is under time pressure to make a launch date? One common solution is to drop features from the product. For example, when Apple launched the iPad mini in November 2012, it did not have the retina display.

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What If Investors Who Held Their Shares Longer Got More Voting Power?

Harvard Business

Next time you're deciding about a big investment, NPV can help you make a more informed decision. Joe Bower and Lynn Paine “had me at hello” (to quote Jerry Maguire ) with their new HBR article, “ The Error at the Heart of Corporate Leadership.” ” Laying out their data, they find that long-term oriented companies create more financial value and more jobs.

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Hospital Budget Systems Are Holding Back Innovation

Harvard Business

Despite a one-year payback period and a highly positive net present value (NPV) from this investment, the department will often reject the attractive opportunity. Gillian Blease/Getty Images. Nearly 800 digital health startups were funded in 2017, an all-time high. Each of the new companies offers the hope of transforming the performance of the U.S. health care system.

Reflecting on David Garvin’s Imprint on Management

Harvard Business

One of the many articles circling back to this topic of late revisited the still-common use of NPV hurdles in investment decisions.) David Garvin, who died earlier this month, was by all accounts one of the great Harvard Business School teachers, lighting up the classroom and the minds of his students over the past 38 years. He was deeply generous to colleagues, younger faculty members, students — and, yes, to editors.

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How to Improve Your Finance Skills (Even If You Hate Numbers)

Harvard Business

Next time you're deciding about a big investment, NPV can help you make a more informed decision. If you’re not a numbers person, finance is daunting. But having a grasp of terms like EBITDA and net present value are important no matter where you sit on the org chart. How can you boost your financial acumen? How do you decide which concepts are most important to understand to your work and your understanding of the business? And who’s in the best position to offer advice?

Stop Focusing on Profitability and Go for Growth

Harvard Business

Next time you're deciding about a big investment, NPV can help you make a more informed decision. The global financial crisis prompted many companies to pull in their horns, hoard cash, trim costs, and take a wary view of large investments. Yet the same crisis ushered in a new age of capital superabundance. Bain & Company’s Macro Trends Group carefully analyzed the global balance sheet and found that the world is awash in money.

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When It Pays to Think Like a Finance Manager

Harvard Business Review

Do you think they’re going to do a net present value (NPV) analysis that shows they don’t need that computer? If the numbers show a negative NPV, meaning that the proposed investment isn’t justified, they change the assumptions until the NPV turns up positive.


The Worst Failure of All Is Wasting a Failure

Harvard Business Review

The CEO and CFO responded with, "A failure to hit ROI and NPV targets." This blog is co-authored with Jay F. Terwilliger ( and Mark H. Sebell (, who are managing partners at Creative Realities, Inc. a Boston-based innovation management collaborative. We often ask executives to tell us about their biggest innovation failures. A recent example is disconcertingly typical.

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How Marketers Can Avoid Big Data Blind Spots

Harvard Business Review

These estimates can then help determine the Net Present Value (NPV) of the long term effect of marketing in terms of future sales. This NPV provides marketers with a reasonable understanding of the long-term implications of marketing in addition to the short term impact measured by Big Data and help make necessary trade-offs when it comes to making spend decisions.


Is Your Business Biased Against Innovation?

Strategy Driven

Net present value [NPV] is a case in point. The logic of NPV is to project cash flows into the future and then discount those flows back into today’s dollars at a given cost of capital. One problem is that NPV calculations tend to compare today with some future state. Many people do not typically think of metrics and accounting as roadblocks to innovation, yet you call these out as potential problem areas.

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Old Buildings Are U.S. Cities’ Biggest Sustainability Challenge

Harvard Business Review

Today large commercial buildings address only two percent per year of the NPV-positive investments in efficiency that are available to them. In the United States, buildings consume 41 percent of the nation’s total energy use, through lighting, heating, air conditioning, elevators, and the thousands of items plugged into their sockets. In large urban centers such as Chicago and New York, the figure surpasses 70%.


Life's Long Cruise? Planning for a Second "Me" Career

Harvard Business Review

Even modest continued earnings dramatically change the NPV calculation. I love meeting people who are planning to retire soon. What are you planning to do?" I always ask. Inevitably, I get an answer along the lines of "my wife and I are planning to take a cruise.". With a healthy life expectancy ahead of 20-30 more years, that would be a very long cruise. Rarely do I encounter someone who gives me a big answer — goals that could fill 30 years.

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Can We Quantify the Value of Connected Devices?

Harvard Business Review

Combining these creates a P&L and a projection, which through a discounted cash flow analysis yields an NPV, which can be used to assess valuation. In the 1990s, Procter & Gamble’s Product Supply Organization kicked off a major Reliability Engineering program, much like the efficiency initiatives of companies such as Toyota.


Lafley’s P&G Brand Cull and the 80/20 Rule

Harvard Business Review

The demands of 80/20 criteria shifts the innovation emphasis away from more traditional financial metrics around DCF , IRR , and NPV and toward better understanding of how novelty preserves, protects, and extends the 80/20 franchise. Declaring he’d cull up to 100 brands — many of which he’d acquired and developed — P&G CEO A.G. Lafley launches a “game changer” profoundly different than what he championed in his eponymous 2008 bestseller.


Why Is an App Worth as Much as a Small Oil Field?

Harvard Business Review

While on the surface, the dirty business of fossil fuels is nothing like Silicon Valley, many in the oil business have moved beyond the standard net present value (NPV) model for assessing the merit of investments. Since Facebook’s acquisition of Whatsapp, commentators have debated whether the app was worth it or not. What if I suggested that the best place to look for answers could be the shale oil fields of North Dakota?


Case Study: Should a Hotelier Invest in a New Kind of Online Travel Agency?

Harvard Business Review

” Negative NPV. “You can see that if you go three years out, the NPV is still negative on our investment. Lotta Tindal, the chief marketing officer for the Dutch hospitality group Ervaring Hotels & Resorts, hadn’t wanted to come to the presentation, but Gerard Bakker, Ervaring’s CFO, had twisted her arm. “These things are nothing more than glorified sales pitches,” she whispered to him. “Stop acting like a teenager,” he joked.