So now I know that in order to workout the " Net Present Value " I have to find the " Present Value " of each year..

And for that I need to find the revenue of each year ..

However, when there are some costs like what we have here ( marketing/production costs) should these become subtracted from the revenue for it to resemble the future value or not ?

Spreadsheet showing expens and sales numbers for five years

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Yes, you'll need to deduct expenses for the year. You're not trying to determine revenue, but annual cash flows (noted as CF in the numerator).

In short, if revenue is $10 but expenses required to support that figure are $20, you need to factor that into the formula.

If you're still stuck you can see a worked example here: http://www2.isye.gatech.edu/~shackman/isye6225F08/NPV%20analysis.pdf

  • thanks , but can u tell me if this true please since im not a business major and i found your example to be harder... just in calculating the PV of year 2017 assuimg the interest to be 6%, this will be .. PV = 22,000 - 25,000 / (1+6 %)^2 = - 2669.98 .. is this correct so i can apply it for all ?? i got confused on whats the difference between annual cash flows and revenue mybe – carlos Dec 27 '16 at 0:56
  • was my way correct in determining the annual cash flows ? sales * price per unit ? and then i subtract all the expenses from that year ( marketing/production costs) ? – carlos Dec 27 '16 at 0:58

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