Any cost here or benefit here is going to get multiplied by one.

And so once it'll end up in there unchanged, then

that will get added up.

So the number here will go up or down by whatever benefit

or cost you include in there.

This is $43.

If I increase the cost by $150 up to $600,

the net present value falls by $150 down to minus $107.

So there you have it.

Now having done that, we can explore a whole range

of potential other changes.

So for example, let's just remember

that we've got minus $107 as a net present value

at the moment.

If I was to make this a 5% discount rate instead of 10%,

then we've gone from a negative of a bit over $100

up to a positive net present value of $300 per hectare.

So the discount rate is a really important consideration.

And the value of the discount rate

can make quite a large difference to the conclusions

that you reach about whether the benefits outweigh the costs,

especially if you have a long time frame

and the benefits occur a long time after the costs.

So in this particular example, most of the benefits

are occurring after year 10.

And the biggest of the benefits is actually in year 20.

And so these are getting discounted quite heavily.

So even with a discount rate of only 5%,

the discount factor in year 20 is 0.38, say.

So that $400 is counting only at about $160

in the present value terms.

So there we go.

Of course, we can change any of these benefits

and any of these costs, and see what effect

that has on the net present value.

And that's a really valuable thing to do in a spreadsheet,

to do sensitivity analysis where you vary

your parameters to see, particularly

the ones that you're uncertain about, to see whether they

have an effect on the result.

And if they do have an effect on the result,

you can think about how realistic those changes are

and how much confidence you've got in any particular result.

Now having completed that process

and gone through the calculation of net present value in detail,

I can show you an easier way.

I think it was worth going through the full process

to help you understand how net present value is calculated.

But we can take advantage of the NPV function

that is provided in Excel.

But there is one trick to be aware of,

so I'll show you that.

So I'm going to click here in cell D23 and type

in equals NPV-- open brackets.

Then it's asking me for the rate.

I'll click over here on I2, comma,

then mark the range of values.

But I'm not going to include the value for year zero.

I'm including the range from years 1 to 20.

Close brackets, and then plus the value for year zero.

That's the trick-- you don't include

year zero within the net present value calculation.

Because Excel automatically assumes that the first year is

discounted, whereas the value in year zero

shouldn't be discounted.

And you can see that we've got the same value, $106.68 as we

calculated going through the whole process in detail--

gives us some confidence that we did it correctly.