You are here


30 April, 2015 - 10:00

Each cash inflow/outflow is discounted back to its present value (PV). Then they are summed. Therefore NPV is the sum of all terms \frac{R_t}{(1+i)^{t}} , where

t - the time of the cash flow

i - the discount rate (the rate of return that could be earned on an investment in the financial markets with similar risk.)

R_t - the net cash flow (the amount of cash, inflow minus outflow) at time t (for educational purposes, R_0 is commonly placed to the left of the sum to emphasize its role as (minus the) investment.