Editing Net present value (section)

== Alternative discounting frequencies ==

The NPV formula assumes that the benefits and costs occur at the end of each period, resulting in a more conservative NPV. However, it may be that the cash inflows and outflows occur at the beginning of the period or in the middle of the period.

The NPV formula for mid period discounting is given by:

:<math>\mathrm{NPV}(i, N) = \sum_{t=0}^N \frac{R_t}{(1+i)^{t-0.5}}</math>

Over a project's lifecycle, cash flows are typically spread across each period (for example spread across each year), and as such the middle of the year represents the average point in time in which these cash flows occur. Hence mid period discounting typically provides a more accurate, although less conservative NPV.<ref>{{Cite web |title=Mid Period Definition, Calculation, Applications |url=https://www.fe.training/free-resources/valuation/mid-period/ |access-date=2023-04-21 |website=Financial Edge |language=en-US}}</ref><ref>{{Cite web |title=NPV Method - NPV and Risk Modelling for Projects |url=http://www.projectnpv.com/3.html |access-date=2023-04-21 |website=www.projectnpv.com}}</ref>
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The NPV formula using beginning of period discounting is given by:

:<math>\mathrm{NPV}(i, N) = -\text{Initial Investment} + \sum_{t=1}^N \frac{R_t}{(1+i)^{t-1}}</math>

This results in the least conservative NPV.