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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

cash flow diagram

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

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

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