Net Present Value Formula There are two formulas you might use to calculate net present value. The one that you choose can depend on the number of cash flows the investment has.

Net present value and the profitability index are helpful tools that allow investors and companies make decisions about where to allocate their money.

The interest rate can also be a discount rate, such as the current rate of inflation; in this case, the annuity formula discounts a series of future payments to calculate their present value.

What's the NPV? NPV stands for net present value, and it is an accounting calculation that every lender makes about each loan that is reviewed for a possible loan modification.

Therefore, the "present value" to you -- the value in today's dollars -- of that $100 future cost is actually only $95.24.

The present value of an annuity is the current value of future payments from that annuity, given a specified rate of return or discount rate.