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3 Minute Overview: (Calculation at bottom)
10 Min. NPV Calculation & Explanation (super easy)
Net Present Value Exam Preparation (NPV Lease vs. Buy & NPV Investment 1 vs. Investment 2) – Premium Video (Free Preview)
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- NPV is similar to Present Value, but is more like different present values “combined.” Basically, it’s today’s value of different future values. (Huh??)
- Imagine you’re given different values in the future… and you use the present value formula on each of those future values; and then you combine it into just one present value. That’s your NPV!
- You calculate it using the NPV Net Present Value formula:
NPV = (Cash in or out today – if any) + (Cash in or out in Yr 1)-1 + (Cash in or out in next years)-n
- DON’T panic! It’s much EASIER than it looks. Watch it for free right now in the videos above.
Net Present Value is normally used to determine if a project is bad or good. If future cash flows have a NPV higher than a project’s cost, then the project is “good.” If it’s lower, then project is “bad”. Alternatively, if the project’s cost is already included in the NPV calculation, the project is “good” if the NPV is simply positive; and the project is “bad” if the NPV is simply negative.