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Each cash inflow/outflow is discounted back to its present value (PV). Then they are summed. Therefore NPV is the sum of all terms , 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.)
- the net cash flow (the amount of cash, inflow minus outflow) at time t
(for educational purposes,
is commonly placed to the left of the sum to emphasize
its role as (minus the) investment.
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