How it works
Write the cash list first. Then decide what the page is measuring.
- Pick one cash event and shrink it. That is present value.
- Repeat for every year on the lease.
- Add those results. That sum is NPV.
- Keep one rate for the whole walk.
Formula in words. Present value of year n = cash / (1 + rate)^n. NPV is the sum of those present values.
| Input | Meaning |
|---|---|
| One cash event | A single year or a single credit |
| The full stream | Every year on the term |
| Discount rate | The same price of waiting |
Worked example
Here is a teaching sample. It is not customer data and not a result from a live client.
Lease A start rent$36,000
Lease B start rent$33,480
Discount rate8%
Sample NPV A$317,833
| Metric | Lease A | Lease B |
|---|---|---|
| Start rent | $36,000 | $33,480 |
| Year-1 extras | $7,200 | $7,704 |
| Year-1 credit | $9,000 | $4,950 |
| Sample NPV | $317,833 | $306,363 |
| Year | Rent | Extras | Credit | Cash out | Value today |
|---|---|---|---|---|---|
| Year 1 | $36,000 | $7,200 | $9,000 | $34,200 | $31,667 |
| Year 2 | $37,080 | $7,416 | $0 | $44,496 | $38,148 |
| Year 3 | $38,192 | $7,638 | $0 | $45,830 | $36,381 |
| Year 4 | $39,338 | $7,868 | $0 | $47,206 | $34,698 |
| Year 5 | $40,518 | $8,104 | $0 | $48,622 | $33,091 |
| Year 6 | $41,734 | $8,347 | $0 | $50,081 | $31,560 |
| Year 7 | $42,986 | $8,597 | $0 | $51,583 | $30,098 |
| Year 8 | $44,276 | $8,855 | $0 | $53,131 | $28,705 |
| Year 9 | $45,604 | $9,121 | $0 | $54,725 | $27,376 |
| Year 10 | $46,972 | $9,395 | $0 | $56,367 | $26,109 |
| Sample NPV | — | — | — | — | $317,833 |
How to read the sample
Sample NPV for PV versus NPV sample is about $317,833. A second path lands near $306,363. That gap is a talking point, not a promise.
Year notes for PV versus NPV sample
- Year 1 of PV versus NPV sample has rent of $36,000.
- Shared building cost is $7,200.
- A credit of $9,000 lowers the cash you pay that year.
- Cash out this year is about $34,200. Year one still has a small credit.
- Later cash gets a shrink for time. At 8 percent, year 1 is worth about $31,667 today.
- Next, year 2 rent is $37,080.
- CAM, which is a shared building cost, is $7,416.
- There is no credit in this year.
- You pay about $44,496 this year after extras and credits. Year two is a plain rent plus extras year.
- Time shrinks later cash. At 8 percent, year 2 is worth about $38,148 today.
- Then year 3 rent is $38,192.
- Extras for the building come to $7,638.
- Credits skip this year.
- The net cash this year is about $45,830. Year three shows the step.
- Waiting has a price. At 8 percent, year 3 is worth about $36,381 today.
- After that, year 4 rent is $39,338.
- The shared building cost this time is $7,868.
- No extra credit shows up this year.
- Cash out this year is about $47,206. Year four is later cash.
- Later cash gets a shrink for time. At 8 percent, year 4 is worth about $34,698 today.
- In year 5 of PV versus NPV sample, rent is $40,518.
- Shared building cost is $8,104.
- There is no credit in this year.
- You pay about $48,622 this year after extras and credits. Year five still counts in the sum.
- Time shrinks later cash. At 8 percent, year 5 is worth about $33,091 today.
- Year 6 of PV versus NPV sample has rent of $41,734.
- CAM, which is a shared building cost, is $8,347.
- Credits skip this year.
- The net cash this year is about $50,081. Keep this later year in the sum for the sample.
- Waiting has a price. At 8 percent, year 6 is worth about $31,560 today.
- Next, year 7 rent is $42,986.
- Extras for the building come to $8,597.
- No extra credit shows up this year.
- Cash out this year is about $51,583. 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 $30,098 today.
- Then year 8 rent is $44,276.
- The shared building cost this time is $8,855.
- There is no credit in this year.
- You pay about $53,131 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 $28,705 today.
- After that, year 9 rent is $45,604.
- Shared building cost is $9,121.
- Credits skip this year.
- The net cash this year is about $54,725. The row still belongs in the sum for the long path.
- Waiting has a price. At 8 percent, year 9 is worth about $27,376 today.
- In year 10 of PV versus NPV sample, rent is $46,972.
- CAM, which is a shared building cost, is $9,395.
- No extra credit shows up this year.
- Cash out this year is about $56,367. 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 $26,109 today.
Add those year values. The sample NPV for PV versus NPV sample is about $317,833. This is a teaching sample, not a client result.
Trusted sources
These are public references. They are not endorsements and not client results.