CHAPTER 14

Net Present Value Method

Net present value (NPV) is one of a group of topics often referred to as capital budgeting. It isn’t often viewed as a cost-volume-profit technique. In this method, we will calculate a cost or a value, which we will call the indifference point. Typically, an organization is faced with deciding between two alternatives, each of which will have the same result to the organization (hence, the indifference). Sometimes, one application of this method is called the outsource decision (or the make-or-buy decision).

Let’s get started with an example.

Example 1

Statewide Industries currently has a landscaping department to care for the vast, tastefully decorated grounds surrounding its office and laboratory complex. ...

Get Breakeven Analysis now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.