Describe the factors that are used in the NPV and the FV formulas. Give an example of how to use the formulas for NPV and FV for a stock purchase.

The Net Present Value (NPV) and Future Value (FV) formulas are used to help determine the viability of an investment by taking into account the time value of money. Both equations use similar inputs such as the initial investment amount, cash flows over time, and the discount rate; however they differ in their output.

For example when calculating NPV a positive figure suggests that an investment will generate returns above its cost while a negative number implies otherwise. The FV formula on the other hand shows how much a given sum will be worth at some point in the future assuming all associated cash flows are received and invested.

To illustrate, say you wish to purchase 100 shares of stock for $10 each with annual dividends of $1 per share. Using these figures along with a 10% discount rate your NPV would be $57.60 which indicates that this is likely a worthwhile investment; whereas your FV after five years would be around $161.00 suggesting that it has potential for long-term growth as well.