NPV Calculator

About NPV Calculator

This NPV (Net Present Value) Calculator helps you evaluate the total present value of a series of future cash flows by applying a specified discount rate. It subtracts the initial investment (cash outflow) to give you the overall net present value of your project or investment.

NPV (Net Present Value) Calculation Formula:

The NPV formula is as follows:

NPV = −C₀ + Σ_t=1^N C_t / (1 + r)^t

• C₀: The initial investment amount (typically a negative value representing cash outflow).
• C_t: The net cash inflow at time period t.
• r: The discount rate (i.e., the required rate of return or cost of capital).
• N: The total number of periods (years) over which the cash flows occur.

This formula discounts each future cash flow back to its present value and subtracts the initial investment to compute the project's net present value. A positive NPV suggests that, under the given discount rate, the project is expected to generate value above the cost of capital, while a negative NPV indicates it may not be a profitable investment.

Why Use This NPV Calculator?

• Investment Decision Making: Quickly determine if a project has a positive or negative NPV.
• Comparison of Alternatives: Compare different projects by their net present values under the same discount rate.
• Adjustable Discount Rate: Factor in your required rate of return or cost of capital to see if an investment is worthwhile.
• Visual Insight: The chart shows the cumulative discounted cash flow over time, helping you see when and how NPV accumulates.

Key Inputs:

• Initial Investment: The upfront cost or cash outflow (e.g., 60000).
• Annual Cash Flow: The recurring net cash inflow per year (e.g., 12000).
• Discount Rate: The annual rate used to discount future cash flows (e.g., 6 for 6%).
• Number of Years: How many years you plan to evaluate.

Interpreting NPV:

• If NPV < 0, the investment is generally considered unfavorable under the given discount rate.
• If NPV = 0, the project breaks even in present value terms.
• If NPV > 0, the project may be worthwhile as it is expected to generate returns above the discount rate.

Frequently Asked Questions (FAQs):

• Why might my NPV be negative? Because the sum of discounted future cash inflows does not exceed the initial investment cost.
• Can this calculator handle non-constant annual cash flows? This simple version assumes a constant annual cash flow. For irregular cash flows, you could enter an approximate average or extend the code to accept multiple different cash flow amounts.
• What discount rate should I use? Typically your required rate of return, the cost of capital, or a rate reflective of the risk profile of the project.

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