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


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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