NPV is calculated using the following formula: NPV = Σ (Cash inflow / (1 + r)^t) - Initial Investment Where:
Σ: Summation symbol, representing the sum of cash flows over different periods. Cash inflow: The net cash inflow during a single period. r: Discount rate, the rate of return required or the cost of capital. t: Time period. Initial Investment: The upfront cost of the project or investment.