Negative NPV Formula

Negative NPV Formula

NPV negative mean when present value of cost exceeds the benefit. In simple word when cost is more than benefit at present date. It is logical that a project with negative NPV would be rejected.

Negative NPV = PV of Benefits < PV of Cost

Example

Investment required for a project = 500,000

First & Second Year income =     300,000 & 280,000

Weighted Cost of capital= 12%

Solution

 Years                  Year 0                Years 1                   Year 2

Initial investment      500,000

Income                                                           300,000

Income                                                                                                    280,000

Discount Factor        (1+.12)^-0                                      (1+.12)^-1                                   (1+.12)^-2

PV                               (500,000)                      267857                         223,214

NPV = 267,857+223,214-500,000

=(8,929)