Net present value is the calculation that compares the amount invested today to the present value of the future cash receipts from the investment. In other words, the amount invested is compared to the future cash amounts after they are discounted by a specified rate of return.

NPV = ∑ {Net Period Cash Flow/(1+R)^T} – Initial Investment

where R is the rate of return and T is the number of time periods.

The equation looks pretty straightforward if you study it. Take the amount of revenue your project will bring in each year and apply the time value of money to it. (As money goes into the future, it becomes less valuable, so a dollar from today is worth more than a dollar from tomorrow.)

The problem here is that R. How do you know what R is? There are extensive studies that look at that and gauge what R is and how it changes over time. What factors influence R?