How ranchers can use net present value (NPV) to determine if an investment is worthwhile is described in a University of Wyoming Extension bulletin.
NPV discounts future returns based on the riskiness of an investment and compares them directly to current or future costs, stated authors of “Net Present Value,” B-1302.
“Many decisions on a ranch require significant capital investment to facilitate change,” said Bridger Feuz, UW Extension livestock marketing specialist. “This type of investment typically includes initial costs but also provides returns over a period of time.”
The time value of money must be included in an investment analysis because these returns occur over time.
The bulletin is free to view or download by going to www.uwyo.edu/uwe and clicking on Find a Publication then type the number or title in the search field. The bulletin is available in pdf, HTML or ePub formats.