# How to Calculate the NPV Base

Net Present Value

Net present value is a financial metric commonly used by financial analysts to evaluate project proposals or investment decisions. Mathematically, it is the difference between the present value of cash inflows and the present value of cash outflows. Inflows are usually defined as income and outflows are usually defined as costs. As the calculation is difficult to do by hand, analysts use calculators (either online or financial) to determine the base-case NPV for a project. The base NPV is the average case scenario. Financial analysts will then calculate a best case (lower costs, higher income) and worst case (higher costs, lower income) to provide management with additional data points.

## Step 1

Determine your variables. Define your required discount rate (required rate of return in order to accept the project) and the length of the project or asset ownership (in years).

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## Step 2

Determine the cost of the investment. This can be one initial cash outlay or multiple cash outlays. Sum for a total cost of investment.