Assumptions and method
Use independently justified inputs and avoid double counting benefits. This net-return definition is not annualised.
Test a scenario
Use the result in a decision
Use consistent currency, timing and price assumptions.
Use independently justified inputs and avoid double counting benefits. This net-return definition is not annualised.
Set a baseline and change one assumption to compare outcomes.
A worked example
Follow the fixed teaching example
- Divide present-value benefits by present-value costs: 18,000 ÷ 12,000 = 1.5.
- Net present benefit = 18,000 − 12,000 = 6,000.
These illustrative inputs describe a project scenario, not a published benchmark. All monetary inputs use the same currency and price basis.
- PV of benefits
- 18000
- PV of costs
- 12000
- Benefit-cost ratio
- 1.5
- Net present benefit
- 6,000
- Net return on cost
- 50 %
Interpret the output only within the assumptions above. Changing the inputs changes the result; it does not validate the inputs.
Source & credit
Standard financial mathematics; no single inventor is asserted.
OpenStax: Principles of Finance, capital budgeting
This is independently written code and explanation of the underlying method. The linked publication, its diagrams and its trademarks remain its owner’s material; no permission to reuse them is implied.