NPV is the difference between the present value of future cash flows and the initial investment. A positive NPV means the investment is expected to generate value above the required return rate.
NPV = Σ [CFt / (1 + r)^t] - Initial Investment where CFt = cash flow at time t, r = discount rate
An investment of $10,000 that pays $3,000/year for 5 years at a 10% discount rate: NPV = $3,000/(1.1) + $3,000/(1.1)² + ... + $3,000/(1.1)⁵ - $10,000 = $1,372. Positive NPV — a good investment.
AllInvestView calculates IRR — the rate at which NPV equals zero. Read our portfolio returns guide.