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Net Present Value (NPV)
Purpose
Determines the difference between the present (discounted) value of some expected future value and the initial investment needed to achieve that value. Generally the project with the highest NPV is selected, avoiding any with a negative NPV.
Formula [Note]
(Expected Future Value / ((1 + (Annual Interest Rate / 100)) ^ Number of Years)) - Initial Investment
Example
123 Corp. is considering an initial investment of $1,600,000 to achieve an expected future value of $2,100,000 in 5 years. Given an available interest rate of 6.5%, the net present value is $-67,250. The project is therefore rejected.
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Atrapoint MBA Toolkit
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Solve Net Present Value (NPV) as well as dozens of other business, finance, strategic and operations quickly and easily with Atrapoint MBA Toolkit. More powerful than a business calculator. Easier than a spreadsheet.
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