Product Research and Reviews

Net Present Value (NPV) Overview:

Net Present Value (NPV) is a financial metric that evaluates the profitability of an investment or project. It calculates the present value of all future cash flows generated by the investment, taking into account the time value of money. The time value of money recognizes that the value of money decreases over time due to factors such as inflation and the opportunity cost of not investing elsewhere.

NPV Formula:

NPV

The NPV is calculated using the following formula:

Where:

NPV is the Net Present Value.

CFt is the cash flow at time t.

r is the discount rate.

n is the total number of periods.

A positive NPV indicates that the investment is expected to be profitable, while a negative NPV suggests potential losses.

Input Guide for Users:

Cash Flows: Enter the cash flows for each period separated by commas (,).

For example, for a 5-year project with cash flows of -100, 30, 35, 40, and 50, enter -100, 30, 35, 40, 50.

Note: The initial value should be negative as it is a cash outflow.

Discount Rate: Enter the discount rate as (number 1, 2,3..) although it is a percentage.

For instance, if the discount rate is 10%, enter 10.

Example Usage:

Suppose you are evaluating a project with the following cash flows over 4 years and a discount rate of 8%:

Input: Cash Flows: -200, 50, 70, 90,50

Discount Rate: 8

Output: The Net Present Value calculated using the provided inputs is 14.51

This provides a quick assessment of the project’s profitability. A positive NPV suggests that the project is expected to generate returns above the discount rate, making it a potentially worthwhile investment.

Net Present Value Calculator

Net Present Value Calculator



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