Net Present Value

NPV(Net Present Value) is the difference between inflows(money coming in) and outflows(money going out) in Present value.

How to calculate it?????

1) Find out the outflow or the investment cost. For say. tk.100

2) Find out the inflow or income that the project will generate in the coming years say Tk.50 in the 1st year then again Tk 50 in the 2nd year and again taka 50 in the 3rd year.

3) Find out the discount rate say 10%.

4) Now convert the future inflows in the Present value.

5) Take the present value of inflows and outflows and subtract the inflows from outflows i.e the NPV(NeT Present Value).

Now using the given information above we will solve it using this formula. 





Ct = Inflows = Tk.50 for 3 years
C0 = Outflows = 100
r = discount rate = 10%
t =number of years

NPV = -100+ 50/1.10 + (50/1.10^2) + (50/1.10^3)
NPV=Tk.24.34.

If it forms an annuity(Equal amount and equal interval) like the above example then you can use this formula.

NPV = -C0- Ct(PVIFA r,t)

NPV = -100-50(PVIFA 10%,3)

NPV = TK.24.34

Accept Reject Criterion
Accept the project when NPV=>0 
Reject the project when NPV<0

(PVIFA = Present Value Interest Factor of Annuity)