Calculated from the sample figures using the displayed formula.
What is the net present value formula?
Σ CFₜ ÷ (1 + r)ᵗNet present value converts future cash flows into today’s value and subtracts the initial investment.
What do the inputs mean?
- Initial investment
- The value entered for initial investment. Keep its period and units consistent with the other inputs.
- Annual cash inflow
- The value entered for annual cash inflow. Keep its period and units consistent with the other inputs.
- Discount rate (%)
- The value entered for discount rate (%). Keep its period and units consistent with the other inputs.
- Number of years
- The value entered for number of years. Keep its period and units consistent with the other inputs.
How to calculate it step by step
- Define the decision.
Write down what the result will help you compare or decide. - Collect matching inputs.
Use figures from the same period and apply the definitions shown on this page. - Apply the formula.
Σ CFₜ ÷ (1 + r)ᵗ. - Check the units.
Confirm whether the result is a currency amount, percentage, number of periods or ratio. - Test a second case.
Change one assumption at a time to see what drives the result.
Worked example
Using the sample figures in the calculator, the result is $13,723.60. Change one figure at a time and recalculate to see which assumption has the greatest effect. A spreadsheet should return the same result when it uses the same formula, units and timing.
When should you use net present value formula?
Use NPV to compare a project with a required return or cost of capital.
Limitations and common mistakes
This simplified calculator assumes equal year-end cash inflows. Irregular cash flows require a dated model.
Do not mix annual figures with monthly figures, ending balances with averages, or percentages with whole numbers. Record the definition used so another person can reproduce the result.
Frequently asked questions
What is net present value formula?
Net present value converts future cash flows into today’s value and subtracts the initial investment.
How should I use net present value formula?
Use the formula only after matching every input to the same period, unit and definition. Then compare the result with a worked example and the decision you are trying to make.
What is the most common mistake with net present value formula?
This simplified calculator assumes equal year-end cash inflows. Irregular cash flows require a dated model.
Can I calculate net present value formula in a spreadsheet?
Yes. Reproduce the displayed equation with separate cells for each input, keep percentages as decimals, and test the spreadsheet against the worked example before replacing the sample figures.
Sources and methodology
This page uses the Calculate NPV and IRR in Excel for the underlying financial or reporting context. Spreadsheet-related behavior is checked against Microsoft’s financial-function documentation. Examples are illustrative and use the formula displayed on the page.