Evaluate the profitability of an investment by discounting future cash flows to today's value.

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Net Present Value (NPV) Calculator

⚠️ Note: This tool provides financial estimates. It is not a substitute for professional advice. Always verify with a certified accountant or advisor.

What is Net Present Value (NPV) Calculator?

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 is a core component of corporate budgeting used to assess the profitability of a projected investment or project.

How it Works

NPV accounts for the 'Time Value of Money'—a dollar today is worth more than a dollar tomorrow. Formula: $ NPV = \sum \frac{R_t}{(1+i)^t} - C_0 $ Where Rt is net cash flow at time t, i is the discount rate, and C0 is the initial investment.

Step-by-Step Guide

1. Initial Investment

Enter the startup cost (negative cash flow).

2. Discount Rate

Enter the required rate of return (often WACC).

3. Cash Flows

Input expected net cash flow for each year.

4. Calculate

Sum the discounted values.

Example

Input: Invest $10k, Return $3k/yr for 5 yrs, 5% rate

Result: $2,988 NPV

FAQ

What discount rate should I use?

Companies often use their WACC. Individuals might use their opportunity cost or expected market return.

NPV vs IRR?

NPV gives a dollar value; IRR gives the percentage return. NPV is generally preferred for mutually exclusive projects.

Does NPV account for inflation?

Usually, the discount rate includes an inflation premium. If using real cash flows, use a real discount rate.

What if NPV is zero?

The project is expected to exactly break even in value terms.

Limitations?

It relies heavily on future cash flow estimates, which can be uncertain.

Conclusion

A positive NPV indicates that projected earnings (in present dollars) exceed anticipated costs, suggesting the investment should be profitable. A negative NPV typically results in rejection.

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References & Standards

This calculator uses formulas and data standards from Standard References to ensure accuracy.

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