Question

Why when we calculate NPV we include the initial NEGATIVE cash out flow in the calculation but if it initial cash flow is POSITIVE we do not include it?

For example:

rE=10%

COF0 = (-10,000); CIF1-5 = 5000; NPV =$8,953.933

VS.

rE=10%

CIF0 = 10,000; CIF1-5= 5000; NPV =$18,953.933 (NOT included the initial 10,000)

Answer 1

the net present value calculate the flow of cash inflwo and outflow . so it consider all cash flow whether positive or negative. in first cash it has consider negative as well as positive cash flow.

similary in second cash it should consider all cash flow including the cash flow of 0 period. and the correct answer is 28953.93 (including the cash flow of 0 year i.e.10,000). I am sure all cash flow is considered even if all cash flows are positive. please comment if any query to discuss.