01 · Recognize
Investment & launch
Should we invest in this product, asset or technology?
You are in this case when
- An upfront outlay and a stream of later returns are both in the prompt.
- The decision is go or no-go, often with a stage in between.
02 · Structure
Which drivers matter?
- 01
Demand & use case
Who needs it?Adoption, substitutes and what validates the demand.
- 02
Returns
Cash out, cash inOutflows, inflows, timing, a scenario range and the opportunity cost.
- 03
Delivery
Stage itDependencies, capability gaps, a staged launch and exit criteria.
NPV = Σ cash flow at year t ÷ (1 + rate)ᵗ − upfront investment
03 · Solve
Work the scratch sheet.
Illustrative practice scenarioNew equipment costs $500,000 and should add $150,000 of cash a year for five years. The company discounts at 10%.
- Simple payback$500,000 ÷ $150,000 = 3.3 years
- Five-year annuity factor at 10%(1 − 1.10⁻⁵) ÷ 0.10 = 3.79
- Present value of the inflows$150,000 × 3.79 ≈ $568,600
- Net present value$568,600 − $500,000 ≈ $68,600
The project clears the hurdle with a thin margin: about $69,000 on a $500,000 outlay. A 12% shortfall in annual cash wipes it out, so adoption risk decides.
Work backward from an answer
If the answer is “invest”, the inflows must survive a slow start. So ask what year one looks like if adoption is half the plan, before quoting the NPV.
04 · Recommend
Make the call in three buckets.
Invest in one line, not the full fleet.
NPV is positive but thin, about $69,000 on $500,000; adoption carries the risk.
Stage the second unit on a year-one cash gate of $120,000. Risk: a 12% shortfall in annual cash turns the project negative.
“I would test the assumptions that drive the decision and stage the commitment.”
Watch for: Payback ignores cash after the payback point and the time value of money. A positive base case is not enough when adoption is uncertain.
Special sauce
Bring a real company into the room.
Would you recommend GPUs if computation is ten times faster but data transfer takes most of the job? Ask for the current timing breakdown first.
Read the story →pricing · Media & subscriptionsNetflixWould you fund a second season if viewing is high but subscriber retention barely changes? Identify the comparison group before calculating the return.
Read the story →Three terms to use
- NPV
- Present value of future cash flows less the investment.
- Payback period
- Time for cumulative inflows to recover the outlay; not a full valuation.
- Discount rate
- The return the money could earn elsewhere at similar risk.
Original Harper practice examples; every figure is illustrative. Adapt the questions to the client’s objective, timing and constraints.