What is the NPV and IRR%?
In the above example, the cash flow applications took each of the positive cash flows and “discounted” them by 10% per year back to the present time. This gives the Present Value, which is the Future Value minus the accumulated compound interest (10% in this case). Next it subtracted the initial investment from the total of these positive, discounted cash flows (Present Values). This would be zero if 10% was the actual interest rate earned. The net result of this is the Net Present Value (1,624.03 in this case). The fact that the NPV is greater than zero indicates that you would earn more than the proposed 10%. If NPV was negative that shows the cash flows would earn less than 10%, and if zero they earn exactly 10%. The Net Present Value serves as a check to see if the proposed investment will earn more than another, imaginary investment that would earn 10%. The number 1,624.03 tells you that your initial investment would need to be $81,624.03 instead of $80,000 in order to earn these
