From the course: Investment Evaluation

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A fully worked out example

A fully worked out example - Microsoft Excel Tutorial

From the course: Investment Evaluation

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A fully worked out example

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- At this point you may already understand net present value. If you already get how to calculate it, move on with your life and go to the next video. If you need just one more example that's fully worked out, stay tuned. Okay, so here's the gross NPV equation again, and then here's the one that's a bit easier to understand. Let's breakdown how we can solve for NPV in a few steps. Step one is to forecast expected cash flows. What's the initial cost? How long is a project or duration of the investment? What's your estimate for net cash flows per year? Is there an upgrade that's gonna cost money in the future? And what do you expect the discount rate to be? Step two is to discount all cash flow values to present values using our equation. Step three is to calculate the NPV by summing all present values including the negative initial cost, and last but not least, step four is to make a decision on whether to move forward with the project or investment. Okay, let's sketch out a simple…

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