What benefits are considered when deriving the net present value (NPV) in economic appraisal?

Deriving the net present value (NPV) in economic appraisal involves assessing the total value of both cash releasing and non-cash releasing benefits. Cash releasing benefits are those that contribute directly to an organization's cash flow, such as increased revenues or decreased costs. These are tangible financial benefits that can be directly measured and quantified.

On the other hand, non-cash releasing benefits include qualitative advantages that, while not immediately reflected in cash flow, still contribute to the overall value and effectiveness of a project. These benefits can encompass improved employee satisfaction, enhanced customer loyalty, increased market share, or greater operational efficiencies. Recognizing both types of benefits in the NPV calculation allows for a comprehensive evaluation of a project's economic viability.

Considering only cash releasing benefits would provide an incomplete picture, as it would ignore significant factors that could influence long-term success and sustainability. Similarly, focusing solely on non-cash releasing benefits would not provide the necessary financial grounding to assess the project's return on investment properly. Therefore, incorporating both categories ensures a more accurate and holistic assessment of the potential economic impact of a project, which is fundamental to effective decision-making in business cases.