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Net Present Value (NPV)

Net present value (NPV) for a particular investment is the sum of the annual cash flows, revenues and costs, during the time horizon of the project, discounted to the date of the investment minus the investment outlay.

In other words Net Present Value of an investment is the present value of the stream of annual revenue (PVR) minus the annual stream of costs (PVC) after deducting the initial investment. The terms cost and operating expenses are used in the same context.

NPV = ((discounted future streams of revenues and costs) minus (initial Investment)) = (PV – Investment)

For a solid understanding of the concept of Net Present Value (NPV) and for the calculation of the values of NPV in the baseline scenarios, using the NPV formula and the cash flows for the baseline scenario Years 1 through Year 4, refer to Investment Decision Analysis Module



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