Let's assume we are thinking about investing in an income producing property.  The discounted cash flows calculation would use the initial investment amount, a series of estimated yearly  future after-tax cash flows, the after-tax sales proceeds in a given year and a discount rate determined by the investor.  The discount rate used by the investor reflects the investment risk and anticipated return required to take that risk or put simply, the investor enters the rate of return that he would like to make on the investment.  A negative discounted cash flows / net present value would indicate that the investment doesn't meet investor expectations.  A positive discounted cash flows indicates that the investment meets investor expectations.  The larger the net present value, the better the investment.

Discounted Cash Flows Example - We have the following data for an income property that we are considering purchasing.  We would like to make 20% (  Discount Rate = 20 % ) on our initial investment amount of $92,073.  We calculate a positive Net Present Value of 67,561 for the series of estimated yearly after-tax Cash Flows and after-tax sales proceeds in year 10.