Net present value (NPV) analysis is useful for determining
the current value of a stream of cash flows that extend out into the future. To
calculate net present value, we use the following formula:
NPV = X [(1+r)^n - 1]/[r (1+r)^n]
Where:
X = The amount received per period
n = The number of periods
r = The rate of return
npv = 875,000 [(1+0.11)^7 - 1]/[0.11 (1+0.11)^7]
= $ 7,954, 545
