... investments. This is called the discount rate or opportunity cost because it is the return forgone by investing in the project rather than in securities. Take for example the opportunity cost is 7%. Present value can be obtained by dividing the cash flow (for example £400,000) by 1.07. PV = discount factor * C1 = 1 * C1 = 400,000 = £373,832 1+r 1.07 Therefore you would have to invest £373,832 in order to receive £400,000 at the end of the year. Net present value (NPV) follows on from finding the present value as I will now explain. An investment is worth undertaking if it creates value for its owners. In the most general sense value is created by identifying an investment worth more in the market place than it costs to acquire. The difference between an investment's market value and its cost is called the net present value of the investment, which ...

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