Tools › Project Management › Cost › Cost Estimating › Example
NASA Cost Estimating Handbook v4 Table N-7: present value, NPV, SIR and ROI of a ten-year program
| Tool | Cost Estimating |
| Source | National Aeronautics and Space Administration (2015). NASA Cost Estimating Handbook, Version 4.0. NASA Headquarters, Washington, DC. Appendix N, Table N-7, pp. N-28 to N-30. |
| Level | Undergraduate |
Problem
A ten-year program spends 10, 20, 30, 30 on acquisition in years 1–4 and 20, 10, 5, 5, 5, 5 on operations in years 5–10 (constant-year dollars) and returns benefits of 5, 10, 30, 40, 40, 40, 40, 25 in years 3–10. At a 7 % discount rate with end-of-year cash flows, find the present values of costs and benefits, the net present value, the savings-to-investment ratio and the return on investment.
Inputs to Enter
- Year table (loaded by default): year, acquisition, operating, disposal, saving for years 1–10 as above
- Discount rate 7 %, end-of-year timing; escalation 2 % (then-year display only, does not change the constant-year NPV)
Answers
- Discount factors 0.9346 … 0.5083; PV of costs 106.40, PV of benefits 142.41
- NPV = +36.01, SIR = 1.34, ROI = NPV/PV cost = 33.8 %
- Constant-year totals: cost 140, benefit 230 (the handbook's total row prints 270 from the Figure N-13 stream; its present values come from the 230 column)
- Discounted payback 7.67 years, simple payback 7.0 years; equivalent annual cost 106.40 × (A/P, 7 %, 10) = 15.15
Notes
The tool's default life-cycle-cost table and rate are this example; press Submit. The handbook's Table N-8 mid-year factors at 2.7 % (CRF 0.18035 for 6 years, 0.13880 / 0.14066 for 8 years) are reproduced by the mid-year and mixed timing options.