How to calculate NPV (net present value)
NPV is the sum of each future cash flow divided by (1 + discount rate) to the power of its year, minus the initial investment. You choose the discount rate.
Skip the maths and use the npv calculator
The formula
NPV = −initial investment + Σ CFₜ ÷ (1 + r)ᵗ for t = 1…n.
Step by step
- List the initial investment and each year's cash flow.
- Choose a discount rate.
- Discount each cash flow to today.
- Add them and subtract the investment.
Worked example
Invest 10,000; receive 4,000 a year for 3 years; 8% rate
- 4,000 ÷ 1.08 = 3,703.70
- 4,000 ÷ 1.08² = 3,429.36
- 4,000 ÷ 1.08³ = 3,175.33
- Total 10,308.39 − 10,000
NPV is about 308.39.
Common questions
Calculators for this
Cite this page
APA
Free Calculator. (n.d.). How to calculate NPV (net present value). https://freecalculator.tech/guides/how-to-calculate-npv
MLA
"How to calculate NPV (net present value)." Free Calculator, https://freecalculator.tech/guides/how-to-calculate-npv.
Link
How to calculate NPV (net present value) — Free Calculator, https://freecalculator.tech/guides/how-to-calculate-npv