NPV
Factual definition
Net present value is the present value of all net cash flows, including the initial investment. A positive amount indicates estimated value added at the chosen discount rate when that rate is appropriate for the cash-flow risk and basis.
Also called Net present value
Discount the future receipt and subtract the initial investment
Hypothetical: pay US$30,000 today and receive one US$40,000 payment exactly one year later, with no other cash flows. At a 10% annual discount rate, the inflow’s present value is 40,000 ÷ 1.10 = US$36,363.636…, rounded to US$36,364.
NPV is that unrounded present value minus 30,000 = US$6,363.636…, rounded to US$6,364.
Scroll horizontally to read all columns.
| Measure | Calculation |
|---|---|
| Present value of year-one inflow | 40,000 ÷ 1.10 ≈ 36,364 |
| Initial outflow today | 30,000 |
| Net present value | 40,000 ÷ 1.10 − 30,000 ≈ 6,364 |
Test the payment date, not just the total
Hypothetical project on 1 January 2025: pay US$100,000 immediately and receive net incremental cash of US$60,000 on 1 January 2026 and US$60,000 on 1 January 2027. Assume those are all cash flows after applicable taxes and reinvestment, and 10% is the appropriate annual discount rate.
NPV is −100,000 + 60,000 ÷ 1.10 + 60,000 ÷ 1.10² = US$4,132.
If only the second receipt moves to 1 January 2028, NPV becomes −100,000 + 60,000 ÷ 1.10 + 60,000 ÷ 1.10³ = −US$376. The undiscounted receipts are still US$120,000.
Under these assumptions, that delay removes the modeled value surplus. Check delivery, collection and tax-payment dates as well as the total forecast; ACCA’s appraisal guidance emphasizes future incremental cash and its timing.
Where NPV fits
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