NPV
Discount a stream of future cash flows to present value.
Introduction
Who this is for: Investors appraising multi-year cash flows where timing matters.
Why it matters: Money received in five years is worth less than money today. NPV is the standard way to compare investments with different cash flow timings — a positive NPV means the investment beats your required return.
Typical scenario: An investor comparing a property producing steady income against one with a large exit gain in year five.
- Using a discount rate that does not reflect the risk of the specific investment.
- Discounting nominal cash flows at a real rate, or vice versa — they must match.
- Treating a positive NPV as a guarantee rather than a conditional result of the assumptions.
Inputs
Investment
Annual Cash Flows
Analysis
Discounting the cash flows at 8% gives a present value of £547,186 against an investment of £500,000 — an NPV of £47,186. Discounting reduces the headline total by £224,814, which is the cost of waiting.
This analysis provides context, not financial advice. Consult a qualified adviser before making investment decisions.
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Live Results
Net Present Value
£47,186
PV of Inflows
£547,186
Profitability Index
1.09x
Verdict
Exceeds required return