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
(1 + i)n is known as the "compound amount factor".
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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Related Topics
- Economics - Engineering economic concepts - cash flow diagrams, discount rate, internal rate of return - IRR, income taxes, inflation
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Related Documents
- Cash Flow Diagrams - Time and value of future money
- Discount Rate - The Present Value of future money
- Discrete Compounding Formulas - Discrete compounding formulas with discrete payments
- Interest Formulas - Single cash flow formulas
- Interest Rate - The cost of money
- Internal Rate of Return - IRR - Internal Rate of Return - IRR - the project break-even interest rate
