How to Calculate Net Present Value

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Net Present Value, commonly referred to as NPV, is a capital budgeting tool used in corporate finance and is designed to help firms assess the financial feasibility of various capital expenditures. Based largely on the time value of money, NPV compares the value of the initial investment to the cash flow generated over a number of years. An NPV greater than 0 supports the acceptance of the project, while an NPV less than 0 supports the rejection of the project.

Over the course of this video we'll walk through how to calculate NPV using the present value formula. Although the process is rather simple once you understand the basics, calculating NPV can be rather time consuming. To ensure accuracy make sure that you are organized when writing out your calculations as one number can certainly affect your results.