How is the net present value calculated?

Net Present Value (NPV) is calculated by taking the sum of the present values of expected cash flows from an investment, discounted at a specific rate, usually the cost of capital. The formula is: NPV = Σ (Cash Flow_t / (1 + r)^t) - Initial Investment, where Cash Flow_t is the cash flow at time t, r is the discount rate, and t is the time period. If the NPV is positive, it indicates that the investment is expected to generate value beyond its cost. If it is negative, the investment may not be worthwhile.