To calculate a net present value of a single cash flow, these are divided by of these + a rate of interest for both period that might pass. This is expressed mathematically when raising a divisor to the power of the total of units of period.

Example
E.g.: Wise shoppers obviously locate a net present value of $100 that will be received inside 5 years period. What would it be worth at present? What total of money, if you let it develop at a forget about rate, would equal $100 around 5 years?

I may take the look at a 12% by the month forget about rate.

NPV = 10Cypher dollars divided by I + 12% (0.Twelve) divided by One + 12% (Cipher.Xii), etc.

Since Single.12^Five is astir One.762, a net present value is about $56.74.

Discount rate
A forget about rate utilized inside fiscal calculations is commonly chosen to exist as adequate to the cost of capital. A select few adjustment can be mass produced to the forget about rate to choose account of risks associated by using uncertain cashflows, using more developments.

Discount factor
A forget about factor', P(T), is the number by which a future cash flow to be received at time T must be multiplied in order to obtain the current present value. Thus for a fixed annually compounded discount rate r we have

For a fixed continuously compounded discount rate r we have

Other discounts
For discounts in marketing, see discounts and allowances, sales promotion, and pricing.