Understand that future cash flows are worth less than the same amount today, that the interest rate sets how much less, and that NPV — the present value of all future returns minus the upfront cost — is positive for a worthwhile investment and negative for a bad one.
Present Value of Returns
$11493NPV
$1493Present value of an annuity: PV = A · [1 − (1+i)⁻ⁿ] / iNet present value: NPV = −Investment + PVNPV > 0: worthwhile investment · NPV < 0: not worthwhile · NPV = 0: break-even (the internal rate of return)With the default numbers, confirm NPV is positive — this investment is worth making.
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