“NPV is positive” is not yet an investment proposal
The finance worksheet reports an NPV of THB 290,578.63. Someone recommends approval. Before committing the company's money, the reviewer still needs to know what will be bought, what happens if the company does nothing, when cash is required, and who will respond if customers or costs differ from the forecast.
This final chapter turns the shared case into a decision memo. The aim is not a longer document. I want the person reviewing it to be able to trace the recommendation back to assumptions, challenge those assumptions, and understand the conditions attached to approval.
Every number here remains hypothetical. A positive result under a teaching forecast is not a recommendation to undertake an actual investment. The method is to make the reasoning visible enough to revise when evidence changes.
Begin with the decision and its boundary
The proposal is a three-year project requiring THB 800,000 of equipment and setup spending plus THB 200,000 of initial working capital. Total time 0 outflow is THB 1 million. The annual operating cash forecast is after tax, before financing, and before any separately modeled capital expenditure or working-capital change.
In this case, years 1 and 2 each provide THB 450,000. Year 3 provides THB 450,000 plus the assumed THB 200,000 working-capital recovery, making THB 650,000. There is no terminal asset-sale receipt and no perpetual growth extension. Cash flows occur at year-end in nominal Thai baht.
Specify the alternative to the project. “Do not invest” may mean retaining the current process, buying a smaller service, delaying the start, or losing some future demand. The memo must describe the relevant alternative and count only the cash differences. A convenient zero line is not evidence that doing nothing has no consequences.
Keep the calculation auditable
| Time | Base cash flow | Base cumulative cash | Downside cash flow | Downside cumulative cash |
|---|---|---|---|---|
| 0 | −1,000,000 | −1,000,000 | −1,000,000 | −1,000,000 |
| End of year 1 | 450,000 | −550,000 | 300,000 | −700,000 |
| End of year 2 | 450,000 | −100,000 | 300,000 | −400,000 |
| End of year 3 | 650,000 | 550,000 | 500,000 | 100,000 |
The cumulative columns describe project cash movement before financing, not the company's bank balance. They do not include loan proceeds, principal payments, other business activities, or intrayear timing. Company liquidity still needs its own dated forecast.
Using the assumed 9.12% WACC, base NPV is THB 290,578.63 and IRR is approximately 23.7794% per year. The discount rate assumes compatible business risk, nominal baht, and after-tax cash flows. It is not a current market quote or a rate every project should use.
The downside lowers operating cash to THB 300,000 per year while retaining the assumed THB 200,000 recovery in year 3. NPV becomes negative THB 88,304.99 and IRR approximately 4.4975%. These are scenarios, not probability estimates. We have not calculated an expected NPV because no probabilities have been justified.
Incremental cash flows, discount rate, NPV and assumptions.
Receipt and payment dates, reserves, funding and downside cases.
Specify owners, limits or scope, review points and stop conditions.
Make a small timing claim correctly
Both scenarios first recover the initial outflow at the end of year 3 on the stated annual cash dates. The downside even has a positive undiscounted cumulative total, yet its NPV at 9.12% is negative. Recovering cash and earning the required return are different tests.
Quoting a base payback of about 2.22 years would introduce another assumption: operating cash arrives uniformly within the year. That may be useful in a separate timing model, but it is not what the year-end DCF says. I would keep the stated answer at year 3 unless the proposal supplies a dated or explicitly uniform cash schedule.
Write the recommendation with conditions people can inspect
A practical memo can be short if it links to the working evidence. I would include the following questions in a decision record rather than paste a spreadsheet screenshot with no explanation.
| Question | What a reviewer needs |
|---|---|
| Why this project? | Business problem, alternatives, incremental benefits and delivery limits |
| Which assumptions matter? | Cash dates, units, collection evidence, costs, tax assumptions and responsible owners |
| Does value survive challenge? | Base/downside results, sensitivity and unresolved evidence |
| Can we fund it? | Committed funding, repayment obligations, intrayear cash floor and restrictions |
| Who decides and reviews? | Approval authority, review dates, monitoring owners and adjustment or stop triggers |
A conditional proposal might proceed only after funding is committed and the collection schedule is supported, with a review if customer acceptance slips. That is an example of a decision design, not a conclusion that these particular conditions make the project safe. The required evidence and thresholds must fit the business.
Sales can own evidence about demand and collection terms; operations can own delivery capacity; finance can maintain cash and valuation assumptions. Management remains responsible for weighing conflicts across those inputs. Assigning a name does not make an uncertain forecast certain, but it gives the review a place to start.
Approval begins another learning cycle
Keep the original forecast alongside actual cash flows, with dated reasons for changes. Separate differences caused by timing, volume, price, cost, and scope where the evidence permits. A delayed receipt is not necessarily a lost receipt, but both may require a financing response before the accounting result changes.
Do not require managers to continue solely because money has already been spent. Reassess the remaining choices using avoidable future cash flows and commitments. Equally, do not declare failure from one noisy observation without checking the assumption it actually challenges.
Exercise: write a decision that can change
A team proposes: “Approve because IRR is 23.7794%, above WACC.” Rewrite it so another manager can review the reasoning.
Answer: identify the three-year project and alternative, attach the cash-flow bridge and 9.12% assumptions, report both base NPV of THB 290,578.63 and downside NPV of negative THB 88,304.99, then state the funding and delivery evidence still required. Name who can approve, when actuals will be reviewed, and what would cause adjustment, delay, or rejection. The evidence may still support not proceeding.
Damodaran's investment, financing, and distribution framework supplies the connection across this series. Our worksheet and hypothetical numbers are an application for learning. The useful output is a decision whose assumptions someone else can question, not a number that ends the discussion.