Net Present Worth - NPW - of a Stream of Payments
Net Present Worth - NPW - or Value of a stream of payments
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The present value of a stream of payments
can be calculated with the discounting factor
NPW = F0 / (1 + i)0 + F1 / (1 + i)1 + F2 /(1 + i)2 + .... + Fn /(1 + i)n (1)
where
NPW = present worth or value
F = future cash flow
i = discount rate
Example - Present Worth of an Investment Transaction
The present worth by investing 1000 today receiving 250 every year in 5 years at an interest or discount rate of 10%, can be calculated
NPW = - 1000 / (1 + 0.1)0 + 250 / (1 + 0.1)1 + 250 /(1 + 0.1)2
+ 250 /(1 + 0.1)3 + 250 /(1 + 0.1)4 + 250 /(1 + 0.1)5
= -52.3
PV is negative - and the investment should be avoided.
Net Present Value of a Cash Flow Stream - Online Calculator
- money out - negative values
- money in - positive values
A more flexible Net Present Value and Internal Rate Calculator in Excel spreadsheet format is available here!
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