Net Present Value

What is NPV (Net Present Value)? How to calculate NPV

Net present value (abbr. NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time.

What is NPV?

According to wikipedia, NPV is also known as NPW (Net Present Worth) and applies to a series of cash flows occurring at different times and depends on the interval of time between now and the future cash flow.

What NPV is used for

  1. NPV is used to calculate the current value of a future stream of payments from a company, project, or investment to help decision making.
  2. NPV is used in DCF (Discounted Cash Flow) financial model to analyze the profitability of a projected investment or project. NPV is the result of calculations used to find the current value of a future stream of payments.

How to calculate NPV

NPV = \frac{\text{Cash Flow}}{(1 + i)^{t}} - \text{Initial Investment}

Leave a Reply