I am not understanding how to calculate my Simple Cash Flow Methodology Cost-Benefit Analysis . I have most of it done. However, I cannot figure out how to formulate the Cumulative Net Cash Flow
or the Break Even Point. I am using Excel. I have a picture of it that I can send to your email if you can explain to me the formula. Saving Changes...
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Thomas WalentaGlobal Project Economy ExpertHackenheim, Germany
Jessica,
as I understand, you have a series of time periods (years, months or weeks) and for each you have cost and you have income. The difference (income-cost) can be called benefit or cashflow.
If can add a field for each period which accumulates all benefits from the first to the period you are looking at.
Often, for the first periods, the net cashflow is negative (cost larger than income as you invest), at some period it will become positive. This period represents the breakeven point.
This method is modified by considering the value of future money at the current time (NPV - net present value), which makes sense if you have many periods (years) and should consider the cost of money (interest rate). Saving Changes...
Think of it as having zero money at the start. At the beginning, you have some outflow of cash to invest in the project. Because you had zero money to start, you now pay interest on the money you borrowed to invest. That adds to the negative balance each month. As time goes on, more expenses also add to the balance which is still accumulating interest.
At some point, you start earning revenue. That gets applied to your loan and decreases the balance accumulating interest. When you have both cash outflow, and cash inflow, the net is what gets applied to the balance and NPV calculation.
The break-even point is where the sum of all revenue is equal to the sum of all cash outflow including cost of money (interest payments). That is the point in time where NPV = 0. Saving Changes...
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