Calculation of NPV of new Project Year Cash Inflow Cash Outflow Net Cash Flow PVF @ 11% Present Value 0 -255,460 0 -255,460 1 -255,460.00 68,540 -72,650 -4,110 0.901 -3,702.70 2 82,920 -98,470 -15,550 0.812 -12,620.73 120,360 -90,250 30,110 0.731 22,016.17 UI AW 180,560 -95,780 84,780 0.659 55,847.21 210,450 -100,350 110,100 0.593 65,338.99 6 260,460 -105,780 154,680 0.535 82,698.24 Net Present Value -45,882.81 Project should not be undertaken since it has negative NPV

Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. NPV is used in capital budgeting and investment planning to analyze the profitability of a projected investment or project. NPV is the result of calculations used to find today's value of a future stream of payments.

From the project and computation above it show the negative NPV (-45,882.21) hence the project is reject and cannot be invested on it.

Advantages of NPV

• NPV provides an real measure. It estimates wealth creation from the potential investment in today's dollars, given the applied discount rate.
• NPV accounts for investment size. It works for comparing huge  investments to multi-billion-dollar projects or acquisitions.
• NPV is straightforward to calculate (especially with a spreadsheet).
• NPV uses cash flows rather than net earnings (which includes non-cash items such as depreciation).
• NPV recognizes the time value of money (unlike cash-on-cash returns or simple payback period). For huge investments, which tend to be long-term, this is critically and entirely appropriate.
• NPVs are additive. If you have multiple projects and excess capital, you can add up projects to get a sense of aggregate wealth creation from all investable projects.

Disadvantages NPV

• A discount rate must be selected. NPV also assumes the discount rate is the same over the life of the investment or project.  Discount rates, like interest rates, can and do change year-to-year.  Consider capitalization rates in commercial real estate.  Benchmarks move.  Opportunity costs change and differ across investors.
• NPV assumes you can accurately assess and predict future cash flows. 

Step-by-step explanation

NPV is a capital budgeting technique used to evaluate investment in the organization to whether to invest or reject.