What is NPV and how do I calculate it?
An example of an AI chatbot conversation about calculating Net Present Value (NPV).
What is NPV and how do I calculate it?
NPV stands for Net Present Value. It's a financial metric used to evaluate the profitability of an investment. You calculate it by subtracting the initial investment from the present value of cash inflows over time.
Can you show me the formula for NPV?
Sure! The formula for NPV is: NPV = ∑ (Cash inflow / (1 + r)^t) - Initial Investment, where 'r' is the discount rate and 't' is the time period.
What does the discount rate represent?
The discount rate represents the opportunity cost of capital, or the return rate you could earn on an investment of similar risk. It helps to account for the time value of money.
Can you give me an example of how to calculate NPV?
Absolutely! Let's say you invest $1,000 and expect to receive $300 annually for 5 years. If your discount rate is 10%, we can calculate the NPV using the formula.
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