The current value of future cash flows, minus the net outflows. In simple words, this is the total value you expect a project to generate while factoring in inflation and additional costs. For example, if you’re buying a new machine (cost: $10,000) that will increase the sales by $25000 for 5 years, after which the machine would need to be repaired (cost: $5000), but will be useful for another three years – the net present value calculation will factor in the following:
Net outflows – $10,000+ Present Value of $5000
Net inflows – Present value of $25,000 each for Year 1 to 8 calculated individually
Refer to this handy present value calculator. You can also calculate this on Excel
