Cost–benefit analysis.
Net Present Value, benefit-cost ratio, and payback year — with an optional discount rate for dollars that arrive later.
The decision01
Time-value of money02
3.0%
How much future dollars are worth less than today's. 3% is a common default; use 7–10% if you're comparing to stock-market returns.
Costs & benefits03
Money in, money out, by year.
$
Yr
$
Yr
$
Yr
The bottom line04
NPV
$2,487
B/C Ratio
1.45
Payback
Year 3
The math says this pays off.
Cumulative net (present value)05
Yr 0
-$5,000
Yr 1
-$3,544
Yr 2
-$715.90
Yr 3
$2,487
How to read this06
Three numbers, one verdict.
NPV is every future dollar discounted back to today and added up. Positive means the benefits outweigh the costs at your discount rate.
B/C ratio above 1.0 means each dollar of cost returns more than a dollar of benefit. The higher, the better.
Payback is the first year the cumulative discounted total turns positive. Longer paybacks are riskier — more can go wrong before you break even.
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