1. Select a required rate of return. This rate applies to projects deemed to be of average risk and may be adjusted for a specific proposal whose risk is felt to be above or below average.
2. Estimate the economic life of teh proposed project.
3. Estimate the differential cash inflows for each year during the economic life, being careful that the base case is properly defined and quantified.
4. Find the net investment, which includes the additional outlays made at Time Zero, less the proceeds (adjusted for tax effects) from disposal of existing equipment and the investment tax credit, if any.
5. Estimate the terminal values at the end of the economic life, including the residual value fo equipment adn current assets that will be liquidated.
6. Find the present value of all the inflows identified in steps 3 and 5 by discounting them at teh required rate of return, using Table A (for single annual amounts) or Table B (for a series of equal annual flows).
7. Find the net present value by subtracting the net investment from the present value of the inflows. If the net present value is zero or positive, decide that the proposal is acceptable insofar as the monetary factors are concerned.
8. Taking into account the nonmonetary factors, reach a final decision. (This part of the process is at least as important as all the other parts put together, but there is no way of generalizing about it).
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