- 1). Determine the initial cost of the project. Let's say the project requires an initial investment of $5,000.
- 2). Determine the discount rate for future cash flows. This is the required rate of return for the investment in order for it to be an attractive investment opportunity. Let's say the required rate of return is 10 percent.
- 3). Determine the length of project cash flows. Let's say you are considering an investment that promises 10 years of future cash flows.
- 4). Determine the projected cash flows for the project. Let's say the cash flows remain flat at $1,000 and are paid at the end of each year.
- 5). Input these variables into an online NPV calculator. As the inputs for NPV are the same, the answer will be the same as well. See resources for an online NPV calculator by Investopedia. Be sure to enter the initial cost as a negative number.
- 6). Click "Calculate" for the NPV. In general, the project with the higher NPV is the better project. The answer is $1,144.57.
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