When do you guys use NPV analyses?

Interviewing for a job in which NPV analyses are a big focus. Haven't done one before, so not sure what the use cases are. Data server expansions? Build vs. buy? When would I decide to use an NPV analyses as my measuring stick?

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Not sure what you mean?

NPV is mostly used for project analysis.

Think of it as essentially the DCF of all cash flows from the project, from all costs to all economic profits created.

Examples:

  • new product developed? Npv from investment phase to the perpetuity of profits
  • decision making when there are several courses of action? Npv works. For example settling now vs driving a court battle with deferred outcome in tax litigation
  • opening a commercial presence in a country where you go through a local distributor? Can npv cost of opening + costs of running the local affiliate vs benefits brought in (distributor margin repatriated)
  • m&a: npv of a deal, of synergies…
 

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