# How to calculate net present value using Net present value (NPV)?

Following are cash flow for P1 and P2

Year12345
Project 1 (P1)40004600580072003500
Project (P2)40004800360054003500

Year 1Year 2Year 3Year 4Year 5
0.9250.8920.7490.6710.602

Present value Rs.1/- @10% (discounted factor) using present value table

## Solution

The solution is stated below −

For Project 1 (P1) −

Initial investment = Rs. 35000/-

YearDiscounted factorReturnsNet present value
10.92540003700
20.89246004103.2
30.74958004344.2
40.67172004831.2
50.60235002107

2510019085.6

Present value = Rs.19085.6/-

Return on investment = (25100-19085.6)/35000 => 0.17184 => 17.184%

For Project 2 (P2) −

Initial investment = Rs. 23000/-

YearDiscounted factorReturnsNet present value
10.92540003700
20.89248004281.6
30.74936002696.4
40.67154003623.4
50.60235002107

2130016408.4

Present value = Rs.19085.6/-

Return on investment = (21300-16408.4)/23000 => 0.21268 => 21.268%

Hence, from the above calculations:

Return on investments for P2 is more than P1

So, project P2 is selected.