Net present value/Tutorials

The net present value of a project generating cash flows during n years is given by:

${\mbox{V}}=\sum _{t=1}^{n}{\frac {C_{t}}{(1+r)^{t}}}$

Where

• $t$ is the time of the cash flow
  
• $r$ is the discount rate
  
• $C_{t}$ is the net cash flow (the amount of cash) in year t including the negative cash flows during the period of its initial investment.
  

The net present expected value, E of a project having a probability P of a single outcome whose net present value is V is given by:

E = PV

Where there are multiple possible outcomes y = 1 ...n with probabilities P_y and present values V_y,

then the net present expected value is given by:

${\mbox{E}}=\sum _{y=1}^{n}P_{y}V_{y}$