Net present value

Signature

NPV = PV_B - PV_C

Inputs
Inputs	Definition	Unit
`PV_B`	Present value of all included monetised benefits under the stated perspective	currency in the stated price year
`PV_C`	Present value of all included resource costs under the stated perspective	the same currency and price year as PV_B

Output
`NPV`	Monetised benefits remaining after resource costs are subtracted	currency in the stated price year

Maps the present values of monetised benefits and resource costs to measures of net social value and relative return.

PV_BPV_C

Credible baseline
Costs and benefits are measured incrementally against a baseline that represents what would occur without the evaluated option.
Consistent analytical perspective
Included costs and benefits follow the same stated perspective and affected population.
Common monetary basis
Benefits and costs use the same currency, price year, time horizon and timing convention.
No double counting
Overlapping consequences and transfers are identified so that the same social effect is not counted more than once.

Net present value of an option
An option has present-value benefits of £251,505 and present-value resource costs of £133,168. Its net present value is £118,337.
```
NPV = 251505 - 133168 = 118337
```

Treating positive NPV as an adoption decision
A positive net present value indicates positive monetised net social value under the stated assumptions but does not establish affordability or require adoption.

HM Treasury Green Book
HM Treasury. The Green Book: appraisal and evaluation in central government.
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