Select discount rates to compare by choosing potential interest rates you could receive for depositing the cash in other investments (such as a secure bank). For example, if you could receive five percent interest on capital deposited in a bank you can use five percent as the discount rate for calculating NPV on other investments.
Add one to the discount rate expressed as a decimal. For example, if the discount rate is five percent you add .05 to 1.
Divide the sum by 100. For example, 1.05 divided by 100 equals .0105.
Raise the result to the power of the given year end times negative one. For example, at the end of year one you would raise .0105 to the power of -1, which equals .952. Record the result as the discount factor for that combination of discount rate and year.
Repeat the process for each year that the investment will have a cash flow (a ten-year lease will have a cash flow for ten years). The discount factor for year 0 (the initial investment year) is always 1.
Create a chart of discount factors. Write out "Year" and "Discount Factor" along the columns. Fill in the values for each year along the rows.
Add a column called "Undiscounted Cash Flow." Fill in the expected cash flow for each year along the rows.
Multiply the chart of discount factors by the undiscounted cash flow (in present dollars) for each year. For example, if year one has a cash flow of negative 20 thousand dollars then the adjusted cash flow is 19.04 thousand dollars. Record the result in a new column titled "Discounted Cash Flow."
Repeat the process to calculate adjusted cash flows for each year the investment will have a cash flow.
Add up each cash flow column. Record the sum of the "Discounted Cash Flow" column as the net present value for the given discount rate.