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Net Present Value (NPV)
Finance
NPV calculates the present value of future cash flows minus the initial investment.
Definition
NPV calculates the present value of future cash flows minus the initial investment.
Formula
NPV = Σ [Cash Flow / (1 + r)^t] - Initial Investment
Explanation of Variables
Cash Flow = Future cash inflow
r = Discount rate
t = Time period
r = Discount rate
t = Time period
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Result: —
Worked Example
Investment = 100,000
Cash Flow = 50,000 for 3 years
Discount rate = 10%
NPV ≈ 24,340
Cash Flow = 50,000 for 3 years
Discount rate = 10%
NPV ≈ 24,340
Industry Use Case
Used in investment decisions, solar projects, and financial feasibility studies.
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