Formula
NPV = −C₀ + Σ (CF_t / (1 + r)^t)
Where C₀ is the negative upfront investment, CF_t is a future cash flow, and r is the discount rate.
Example
An investment of 1,000 with future inflows of 400 for 3 years at 10% has NPV ≈ 95.06.
FAQs
How is NPV interpreted?
A positive NPV indicates the investment is expected to add value; a negative value suggests a loss.
Why discount cash flows?
Because money received in the future is worth less than the same amount today.