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Net Present Cost Of Contract Calculator

Work out net present cost of contract instantly with clear inputs, formula shown and shareable results.

About Net Present Cost Of Contract Calculator

Comparing contracts of different terms and escalation profiles requires discounting. Net present cost brings escalating future payments back to today's money, which is the only basis on which a five-year deal with 4% escalation can be compared with a three-year fixed-price alternative.

Formulas

Payment in year t

Payment = Annual cost x (1 + Escalation)^(t - 1)

Net present cost

NPC = sum of Payment / (1 + Discount rate)^t

Worked example

With the default values below, Net Present Cost Of Contract Calculator returns Net present cost of the contract of $50,222,182.20. Change any input above and every figure here is recalculated in your browser.

Inputs used

Annual contract cost
12,000,000
Contract termmaximum 100
5
Annual escalation
4
Discount rate
9

Results

Net present cost of the contract
$50,222,182.20
Total nominal cost
$64,995,870.72
Difference between nominal and present cost
$14,773,688.52
Average annual nominal cost
$12,999,174.14

Step by step

  1. 1Values used
  2. 2Payment in year t
  3. 3Net present cost
  4. 4Net present cost of the contract= 50,222,182.20
  5. 5Total nominal cost= 64,995,870.72
  6. 6Difference between nominal and present cost= 14,773,688.52
  7. 7Average annual nominal cost= 12,999,174.14

Assumptions and limits

  • The result is derived only from the 4 inputs listed above. Anything not among them is not part of the calculation.
  • In particular, this calculator does not take inflation or tax into account.
  • Figures are rounded for display to 2 decimal places, so totals built from several rounded parts can differ slightly from the unrounded arithmetic.

How these calculators are built and tested is described on the Methodology page. If a figure looks wrong, please report it.

Frequently Asked Questions

Which discount rate should I use?

Your weighted average cost of capital, or the government discount rate for public sector procurement. Be consistent across all bids.

Why does escalation matter so much?

Because it compounds. A 4% escalation over five years makes the final year's payment 17% higher than the first, which changes the ranking of bids.

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