NPV calculating Watch

daedalos
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#1
Report Thread starter 8 years ago
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I'm confused... which of these formulas is correct?

NPV = sum of PV when the formula for PV is

Cashflow / (1+i)t

Or is NPV = PV - initial investment cost?

Both formulas seem to be used from different sources, and end result of calculation are different depending on the formula used.

Which is correct?
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Christo
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Report 8 years ago
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(Original post by daedalos)
I'm confused... which of these formulas is correct?

NPV = sum of PV when the formula for PV is

Cashflow / (1+i)t

Or is NPV = PV - initial investment cost?

Both formulas seem to be used from different sources, and end result of calculation are different depending on the formula used.

Which is correct?
Both formulas are the same

The first discounts all cash flows back to the present. (this includes the initial outlay which isn't discounted at all)

The second formula discounts all future cash flows and subtracts the initial outlay.

Hope that makes sense.
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