How to use it
- Use the formula below with your own figures.
The formula
NPV = ฮฃ cash flow รท (1+r)โฟ โ investment.
Worked example
A positive NPV suggests the project adds value.
Frequently asked questions
What rate to use?
Your cost of capital or required return.
Positive NPV?
Generally worth pursuing.
Tips
- Know your break-even before scaling spend.
- Separate margin from markup when pricing.
- Discount future cash flows to value projects.
Key terms
- Break-even
- Where revenue covers costs.
- Margin
- Profit as a percent of price.
- NPV
- Discounted value of future cash flows.