Daily writing prompt
Write about your approach to budgeting.
Net Present Value (NPV) is a financial evaluation method used to determine the profitability of a project by considering the time value of money.
It answers:
“What is the present value of future cash flows after deducting the initial investment?”
Unlike ROI, NPV accounts for the fact that ₹1 today is worth more than ₹1 in the future.
Money received in the future must be discounted because:
Inflation reduces purchasing power
Money has opportunity cost
There is risk involved
Therefore, future cash flows are converted to present value.
NPV=−C0+∑Ct(1+r)tNPV = -C_0 + \sum \frac{C_t}{(1+r)^t}NPV=−C0+∑(1+r)tCt
Where:
C0C_0C0 = Initial investment
CtC_tCt = Cash inflow in year ttt
rrr = Discount rate
ttt = Time period
If NPV > 0 → Accept the project
If NPV < 0 → Reject the project
If NPV = 0 → Break-even
NPV is widely used in:
Real estate feasibility studies
Urban infrastructure projects
Metro and transport projects
Sustainable building investments
PPP projects
Smart city development
It helps planners evaluate long-term economic viability.
✅ Example 1: Commercial Building Project
Initial Investment (Year 0)
₹1,00,000
Expected Cash Inflows:
Year 1 = ₹60,000Year 2 = ₹60,000
Discount Rate = 10%
Step 1: Discount Year 1 Cash Flow
PV1=60,0001.10PV_1 = \frac{60,000}{1.10}PV1=1.1060,000 PV1=54,545PV_1 = 54,545PV1=54,545
Step 2: Discount Year 2 Cash Flow
PV2=60,0001.102PV_2 = \frac{60,000}{1.10^2}PV2=1.10260,000 PV2=49,587PV_2 = 49,587PV2=49,587
Step 3: Calculate Total Present Value
Total PV=54,545+49,587Total\ PV = 54,545 + 49,587Total PV=54,545+49,587 Total PV=1,04,132Total\ PV = 1,04,132Total PV=1,04,132
Step 4: Calculate NPV
NPV=1,04,132−1,00,000NPV = 1,04,132 – 1,00,000NPV=1,04,132−1,00,000 NPV=₹4,132NPV = ₹4,132NPV=₹4,132
👉 Since NPV is positive, the project is financially acceptable.
Initial Investment = ₹2,50,00,000
Annual Net Cash Flow = ₹40,00,000Project Life = 5 yearsDiscount Rate = 12%
Using discount formula:
Year 1:
40,00,000/1.12=35,71,42940,00,000 / 1.12 = 35,71,42940,00,000/1.12=35,71,429
Year 2:
40,00,000/1.122=31,88,77640,00,000 / 1.12^2 = 31,88,77640,00,000/1.122=31,88,776
Year 3:
40,00,000/1.123=28,47,12040,00,000 / 1.12^3 = 28,47,12040,00,000/1.123=28,47,120
Year 4:
40,00,000/1.124=25,41,17940,00,000 / 1.12^4 = 25,41,17940,00,000/1.124=25,41,179
Year 5:
40,00,000/1.125=22,69,80340,00,000 / 1.12^5 = 22,69,80340,00,000/1.125=22,69,803
Total Present Value of Benefits:
≈ ₹1,44,18,307
NPV Calculation:
NPV=1,44,18,307−2,50,00,000NPV = 1,44,18,307 – 2,50,00,000NPV=1,44,18,307−2,50,00,000 NPV=−₹1,05,81,693NPV = -₹1,05,81,693NPV=−₹1,05,81,693
👉 Negative NPV → Project not viable at 12% discount rate.
🔹 1. Transit-Oriented Development (TOD)
Used to assess:
Increased land value
Rental growth near transit
Long-term commercial viability
🔹 2. Infrastructure Projects
Metro rail
Bus terminals
Multi-modal hubs
Flyovers
🔹 3. Sustainable Building Projects
Solar energy systems
Green roofing
Energy-efficient retrofitting
🔹 4. Public-Private Partnership (PPP)
NPV helps determine:
Financial feasibility
Concession duration
Revenue sharing models
✔ Considers time value of money✔ Measures absolute profit✔ Suitable for long-term projects✔ Reliable for infrastructure evaluation✔ Widely accepted in financial analysis
❌ Requires selection of discount rate❌ Complex compared to ROI❌ Sensitive to future cash flow estimation❌ Hard to monetize social benefits
Net Present Value (NPV) is one of the most important financial tools in architecture and urban planning. It allows planners and architects to:
Evaluate long-term project feasibility
Compare alternative design options
Assess infrastructure viability
Support sustainable development decisions
Strengthen Detailed Project Reports (DPRs)
NPV ensures that planning decisions are economically sound, financially sustainable, and aligned with long-term urban growth strategies.
