Lesson 1: Analyze the NPV probability distribution
In this lesson, you analyze the NPV probability distribution over a period of time.
NPV probability distribution
The NPV probability distribution contains a probability distribution of the expected net present value (NPV) of the financial model. The probability distribution shows the 10th percentile, mode, and 90th percentile values for the NPV. The vertical line in the middle of the curve indicates the mode value. To see additional values along the probability distribution, move the mouse pointer over the curve.
Steps
1 Click the NPV Probability tab.
2 Observe the pattern of the probability distribution.
A green curve represents a positive expected NPV. The green curve indicates that your estimations ad projections can be considered as a potential investment.
A red curve represents a negative NPV. The red curve indicates that your estimations and projections is not a good investment option. Modify the estimates and simulate the results to get a green curve.
If the model does not contain high or low estimates, the expected NPV is a point rather than a probability distribution.
3 Make note of the value at the 10th percentile, 90th percentile, and the middle line that indicates the mode value. A good distribution indicates that the project is a feasible investment option.
Lesson checkpoint
In this lesson, you learned to analyze and interpret the NPV probability distribution.
