respect, the ONPV model extends the gamma-discounting principle by embedding probabilistic and behavioural dynamics within an integrated outcomes-based framework for long-term valuation.
The ONPV model is underpinned by an Or , which is adjusted positively or negatively to capture economic uncertainties, changing preferences over time, multiple capital forms and non-financial factors. The idea is to arrive at a weighted average Or that is hyperbolic in nature, accounting for the limitations outlined within this paper. Across the numerator, non-financial costs/benefits are also explicitly included.
To recap, the conventional formulae to calculate an NPV and TV are:
Where: •
NPV: Net Present Value.
• t : Time period, where t 0 is the initial investment. • n : the number of periods. • C t : the costs / benefits or cash flows in period t (this can be positive or negative). • r : the discount rate. • C 0 : the initial investment, or cost at t 0 . • TV = Terminal value at the end of the forecast period, defined as:
•
Where: o C n = Costs / benefits (e.g., free cash flow) in the last forecasted period. o g = perpetual growth rate of free cash flows (assumed to be constant). o r = the discount rate. o n = the last year of the projected period.
However, if we assume that g cannot be constant due to the issues mentioned above, then we cannot use the Gordon Growth model for terminal value. Under this assumption we would define ONPV as follows:
Where: •
ONPV: Outcomes-based Net Present Value. • t : Time period, where t 0 is the initial investment. • ∞ : N is replaced by infinity. • C F,t: The financial costs / benefits at time t . • C NF,t: The non-financial costs / benefits at time t .
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