This is a simplified example of how net present value calculations work but it’s meant to illustrate what the formula can tell you about an investment. What if you get $0 when calculating NPV?

As mentioned, net present value is not specific to investing in stocks or other securities. Businesses can also use net present value formulas to determine where to allocate their capital.

The result using the NPV function for the example comes to $722,169. Then subtract the initial outlay from the value obtained by the NPV function to compute the final NPV.

NPV and IRR are popular ways to measure the return of an investment project. Learn how net present value and internal rate of return are used to determine the potential of a new investment.

A time period for the investment must also be determined. Use a time value of money table or the NPV formula available in most spreadsheet programs to calculate an IT project's NPV.