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Net present value discounted cash flow
0). Note that the results will include a printable chart showing the discounting of each year's net cash flow, along with the total outflows, total inflows, total net cash flows, and total discounted cash flows (NPV). External link in publisher ( help ) External links edit. In this example, only one future cash flow was considered. Example DCF edit To show how discounted cash flow analysis is performed, consider the following example. Have a question about the calculator? "The theory of interest." New York 43 (1930). John Doe buys a house for 100,000. For example, if you know of two other alternative investments (A B) and if you know with a fair amount of certainty that you could earn 6 in alternative A and alternative B would earn 5, then use alternative A as the rate for discounting. Interpretation : To calculate NPV, you add the cash flow from Year 0, which is the initial investment in the project to the rest of the project cash flows.
How is the Discount Rate Determined? For example, using the net present value calculator on this page, you will see that if you know you could earn a 5 annual return (entered as the discount rate) somewhere else, then taking me up on my offer will end up costing you.46. More in-depth explanations can be found in the glossary of terms located beneath the NPV Calculator. Then, once all future cash flows have been discounted, to arrive at the net present value you then sum all discounted cash flows and subtract that amount from the original amount invested. B - Good, but needs slight improvement or an update. All the above assumes that the interest rate remains constant throughout the whole period. So is my hypothetical offer really something you should consider accepting?