How it works
The cash flow is the list of money in and out by year. Write that list first.
- List the cash you pay or receive in each year of the term.
- Subtract credits in the year they actually happen.
- Pick one discount rate and keep it visible.
- Shrink each later year. Add the year values. That sum is NPV.
Formula in words. NPV = year 1 cash / (1 + rate) + year 2 cash / (1 + rate)^2 + later years in the same way.
| Input | Meaning |
|---|---|
| Start rent | The first-year rent before extras |
| Term | How many years the lease runs |
| CAM and other extras | Shared building cost, tax, and insurance if the tenant pays them |
| Credits | Free rent and tenant improvement money |
| Discount rate | How hard you shrink later cash |
Worked example
Here is a teaching sample. It is not customer data and not a result from a live client.
Lease A start rent$42,000
Lease B start rent$39,060
Discount rate8%
Sample NPV A$363,861
| Metric | Lease A | Lease B |
|---|---|---|
| Start rent | $42,000 | $39,060 |
| Year-1 extras | $8,400 | $8,988 |
| Year-1 credit | $18,000 | $9,900 |
| Sample NPV | $363,861 | $353,604 |
| Year | Rent | Extras | Credit | Cash out | Value today |
|---|---|---|---|---|---|
| Year 1 | $42,000 | $8,400 | $18,000 | $32,400 | $30,000 |
| Year 2 | $43,260 | $8,652 | $0 | $51,912 | $44,506 |
| Year 3 | $44,558 | $8,912 | $0 | $53,470 | $42,446 |
| Year 4 | $45,895 | $9,179 | $0 | $55,074 | $40,481 |
| Year 5 | $47,271 | $9,454 | $0 | $56,725 | $38,606 |
| Year 6 | $48,689 | $9,738 | $0 | $58,427 | $36,819 |
| Year 7 | $50,150 | $10,030 | $0 | $60,180 | $35,114 |
| Year 8 | $51,655 | $10,331 | $0 | $61,986 | $33,489 |
| Year 9 | $53,205 | $10,641 | $0 | $63,846 | $31,939 |
| Year 10 | $54,801 | $10,960 | $0 | $65,761 | $30,460 |
| Sample NPV | — | — | — | — | $363,861 |
How to read the sample
Sample NPV for Lease A sample is about $363,861. A second path lands near $353,604. That gap is a talking point, not a promise.
Free rent and a build-out check land here. If one path wins only because a credit sat in the wrong year, start over.
Year notes for Lease A sample
- Year 1 of Lease A sample has rent of $42,000.
- Shared building cost is $8,400.
- A credit of $18,000 lowers the cash you pay that year.
- Cash out this year is about $32,400. Free rent and a build-out check land here.
- Later cash gets a shrink for time. At 8 percent, year 1 is worth about $30,000 today.
- Next, year 2 rent is $43,260.
- CAM, which is a shared building cost, is $8,652.
- There is no credit in this year.
- You pay about $51,912 this year after extras and credits. Rent steps up and the credit is gone.
- Time shrinks later cash. At 8 percent, year 2 is worth about $44,506 today.
- Then year 3 rent is $44,558.
- Extras for the building come to $8,912.
- Credits skip this year.
- The net cash this year is about $53,470. The step-up is still small, but it compounds.
- Waiting has a price. At 8 percent, year 3 is worth about $42,446 today.
- After that, year 4 rent is $45,895.
- The shared building cost this time is $9,179.
- No extra credit shows up this year.
- Cash out this year is about $55,074. Later cash is worth less today than year-one cash.
- Later cash gets a shrink for time. At 8 percent, year 4 is worth about $40,481 today.
- In year 5 of Lease A sample, rent is $47,271.
- Shared building cost is $9,454.
- There is no credit in this year.
- You pay about $56,725 this year after extras and credits. This last year still counts. Do not drop it.
- Time shrinks later cash. At 8 percent, year 5 is worth about $38,606 today.
- Year 6 of Lease A sample has rent of $48,689.
- CAM, which is a shared building cost, is $9,738.
- Credits skip this year.
- The net cash this year is about $58,427. Keep this later year in the sum for the sample.
- Waiting has a price. At 8 percent, year 6 is worth about $36,819 today.
- Next, year 7 rent is $50,150.
- Extras for the building come to $10,030.
- No extra credit shows up this year.
- Cash out this year is about $60,180. The row still belongs in the sum for the long path.
- Later cash gets a shrink for time. At 8 percent, year 7 is worth about $35,114 today.
- Then year 8 rent is $51,655.
- The shared building cost this time is $10,331.
- There is no credit in this year.
- You pay about $61,986 this year after extras and credits. Keep this later year in the sum for the long path.
- Time shrinks later cash. At 8 percent, year 8 is worth about $33,489 today.
- After that, year 9 rent is $53,205.
- Shared building cost is $10,641.
- Credits skip this year.
- The net cash this year is about $63,846. The row still belongs in the sum for the long path.
- Waiting has a price. At 8 percent, year 9 is worth about $31,939 today.
- In year 10 of Lease A sample, rent is $54,801.
- CAM, which is a shared building cost, is $10,960.
- No extra credit shows up this year.
- Cash out this year is about $65,761. Keep this later year in the sum for the long path.
- Later cash gets a shrink for time. At 8 percent, year 10 is worth about $30,460 today.
Add those year values. The sample NPV for Lease A sample is about $363,861. This is a teaching sample, not a client result.
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