Expected Future Cash Flows
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Results
Net Present Value (NPV)
Profitability Index (PI)
Calculation Principles & Formulas
Net Present Value (NPV) is a core metric for evaluating the profitability of an investment. It calculates the difference between the sum of the present values of future expected cash flows and the initial investment cost. If NPV > 0, the project is generally considered profitable; if NPV < 0, it may result in a loss.
[Formula]
NPV = Σ [CFt / (1 + r)^t] - C0
Legend:
CFt = Expected Cash Flow in year t
r = Discount Rate (Required Return)
t = Year (starting from 1)
C0 = Initial Investment
Note: This calculation assumes cash flows occur at the end of each period and the discount rate remains constant throughout.
