Net Present Value Calculator
Evaluate the profitability of your investments.
Cash Flows (Per Year)
Net Present Value (NPV)
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About Net Present Value
Net Present Value (NPV) is one of the most reliable methods used in capital budgeting to evaluate the profitability of an investment. It calculates the difference between the present value of cash inflows and the present value of cash outflows over a specific period.
The Formula
NPV = Σ [Rt / (1 + i)^t] - Initial InvestmentWhere:
Rt = Net cash inflow-outflows during a single period t
i = Discount rate or return that could be earned in alternative investments
t = Number of timer periods
Interpreting Results
- NPV > 0: The investment is expected to generate value. It is generally considered a good investment.
- NPV = 0: The investment will neither gain nor lose value. It meets the expected rate of return exactly.
- NPV < 0: The investment will destroy value or fail to meet the required rate of return. It should generally be rejected.
FAQ
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. It analyzes the profitability of a projected investment.
What does positive NPV mean?
A positive NPV indicates that the projected earnings (in present dollars) exceed the anticipated costs. This generally means the investment is potentially profitable.
What discount rate should I use?
The discount rate is typically the company's Weighted Average Cost of Capital (WACC) or the minimum expected rate of return for the investor.
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