Project duration
Project duration can indicate how far into the future the value of an investment's benefits is concentrated. Under the usual positive-inflow approach, divide the sum of time × present value of each inflow by total present value of those inflows. A longer duration can indicate greater exposure to distant estimates and discount-rate changes, but is not a complete risk measure. State which cash flows and rate are used. Do not divide by project NPV including the initial negative outlay unless a specifically defined alternative measure requires it.
Worked example
Two future inflows have present values of $40,000 in year 1 and $60,000 in year 3. Duration is (1 × 40,000 + 3 × 60,000)/100,000 = 2.2 years. This differs from the three-year final project date.
Common mistake
Using the final project life or undiscounted payback as though it were the present-value-weighted duration.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Direct | September 2026–June 2027 |