*Present value*is the result of discounting future amounts to the present. For example, a cash amount of $10,000 received at the end of 5 years will have a

*present value*of $6,210 if the future amount is discounted at 10% compounded annually.

*Net present value*is the present value of the cash inflows

*minus*the present value of the cash outflows. For example, let's assume that an investment of $5,000 today will result in one cash receipt of $10,000 at the end of 5 years. If the investor requires a 10% annual return compounded annually, the

*net present value*of the investment is $1,210. This is the result of the present value of the cash inflow $6,210 (from above) minus the present value of the $5,000 cash outflow. (Since the $5,000 cash outflow occurred at the present time, its present value is $5,000.)

*To learn more, see the Related Topics listed below:*