Net Present Value Calculator
Calculate NPV to determine investment profitability and make informed financial decisions
Calculate Net Present Value
Required rate of return or cost of capital
Initial cost of the investment project
Annual Cash Flows
Enter expected cash inflows (+) or outflows (-) for each year
NPV Results
Formula used: NPV = -C₀ + ∑[Cᵢ/(1+r)ⁱ]
Investment Decision: Positive NPV - Project is profitable
Payback Period: 2.3 years
Investment Analysis
Present Value Breakdown
Example Calculation
Project Investment Example
Initial Investment: $10,000
Discount Rate: 10%
Cash Flows: $5,000, $4,000, $3,000, $2,000, $1,000
Project Duration: 5 years
NPV Calculation
NPV = -$10,000 + $5,000/(1.10)¹ + $4,000/(1.10)² + ...
NPV = -$10,000 + $4,545 + $3,306 + $2,254 + $1,366 + $621
NPV = $2,092
NPV Decision Rules
NPV > 0: Accept
Project adds value
Investment is profitable
NPV < 0: Reject
Project destroys value
Investment is unprofitable
NPV = 0: Indifferent
Project breaks even
Consider other factors
NPV Tips
Higher discount rates reduce NPV
NPV considers time value of money
Compare projects using NPV per dollar invested
Use IRR alongside NPV for complete analysis
Understanding Net Present Value (NPV)
What is 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 Formula
Where C₀ = Initial investment, Cᵢ = Cash flow in period i, r = Discount rate, i = Time period
Key Applications
Key Concepts
Discount Rate
The interest rate used to discount future cash flows to present value. Represents the required rate of return or cost of capital.
Time Value of Money
The concept that money available today is worth more than the same amount in the future due to its potential earning capacity.
Present Value
The current value of future cash flows discounted at the appropriate discount rate. Used to compare investments with different timing.
💡 Pro Tips
- • Use NPV alongside other metrics like IRR and payback period for comprehensive analysis
- • Consider sensitivity analysis by testing different discount rates
- • Account for risk by adjusting the discount rate or using risk-adjusted cash flows
- • Remember that NPV assumes cash flows can be reinvested at the discount rate