Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. NPV is used in capital budgeting and investment planning to analyze the profitability of a projected investment or project.
The following formula is used to calculate NPV:
NPV=∑t=1nRt(1+i)where:Rt=Net cash inflow-outflows during a single period ti=Discount rate or return that could be earned inalternative investmentst=Number of timer
