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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 + .... + F_n /(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

Cash Flows - Period

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i - Discounting Rate (%)

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

Related Documents

• Cash Flow Diagrams - Time and value of future money
• Compound Interest Tables - Compound interest tables - Interest ranging 0.25 - 60%
• 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