Net present value > Tutorials

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http://en.citizendium.org/wiki?title=Net_present_value/Tutorials&printable=yes
Tutorials relating to the topic of Net present value.

The present value of an investment generating cash flows C during n years is given by:

\mbox{V} = \sum_{t=1}^{n} \frac{C_t}{(1+r)^{t}}

Where

  • t is the time of the cash flow
  • r is the investor's discount rate
  • C_t is the cash flow (the inflow of cash) in year t

Tabulations of the factors to be applied each year at specified discount rates are to be found in many reference books [1].

Present value becomes net present value when C is taken to be the net cash inflow after allowing for outflows at the time of purchase of an asset or during the launch phase of a project.




The net present expected value, E of a project having a probability P of a single outcome whose net present value is V is given by:

E = PV

Where there are multiple possible outcomes y = 1 ...n with probabilities Py and present values Vy,

then the net present expected value is given by:

\mbox{E} = \sum_{y=1}^{n} P_y V_y
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