NPV Calculator

Use the following NPV (Net Present Value) of an investment online calculator. You will have to enter the initial value of capital, discount rate and investment term. It also displays the Internal Rate of Return (IRR) net cash flow and gross return.

---

Using the NPV calculator

How To Use Our Simple Net Present Value (NPV) Calculator And It Is Really Helpful For You. It helps in calculating the following values:

• Find that investment's NPV
• Gross Return, Net Cash Flow + Internal Rate of Return IRR for calculating

Hit Enter to use itFirst enter the initial amount of investment and the term of the investment. Next, include your discount rate, which is often the weighted average cost of capital after tax. You can also pick a higher rate to include risk (or any other factors and opportunity cost as well). That is your call.

Once you do that, enter the net cash flow for every year (up to 25 periods). To prevent double counting the time value of money, do not use cashflow after interest but instead enter the free cash flow.

The NPV calculator provides you with the Net Present Value, IRR, gross return and net cash flow of your entire period with our tool.

What is Net Present Value?

Net present value (NPV)/net present worth (NPW)( often shortened to DCF) is the value of future monies at present discounted on an interest rate costs, (valued decreases with increasing time into the future) Net present value (NPV) represents the value of future cash inflows over a period of time less the present value of cash outflows including the cost. The formula is purely based on a rate which discounts time value of money. Meaning, NPV is: all (positive & negative) present value of expected cash flows less the overall investment

If you can understand 'present value,' think of a business investment of $500,000 that should produce a stream of $50,000 in one year, which is a return on $%. But for a $50,000 cost of capital at 11% per year, that present value is negative—$4,504.50.

The return is not there to pay for the return. But the present value of that same cash flow, if the cost of capital were 5%, would be $23,810. Capital might be employed more effectively, making the business idea attractive.

How to choose the discount rate in NPV analysis?

Before you can find the present value you have to decide upon a discount rate. That rate is company specific and based on its cost of funds (they borrow from someone). If you need to analyze the cost of borrowed funds, you can use the Weighted Average Cost of Capital (WACC). The rate you should pick is the one investors and shareholders would expect for their money if you are seeing it from an investor/shareholder angle. As an example, if shareholders are looking to earn a 10% return, then use the same return figure to arrive at the NPV of the business.

After selecting the discount rate, you can calculate the present values of all future cash flows using the NPV formula. Finally, deduct the total of those present values from the initial investment, and you get the present value of the future income stream.

 NPV formula

If you are thinking about NPV: the calculations, either simply in your head or using an Excel spreadsheet formula, the following will help:

R is your discount rate, t denotes the number of cash flow periods, C0 = initial investment, and C is the cash flow in period t to be used in the formula here. For example, if we choose 10 years, an initial$1,000,000 initial investment and an 8% discount rate (the expected return on similar risk investments). For example with t = 10, C0 = $1,000,000 and r = 0.08

A practical example

How can Net Present Value (NPV) help you look at buying a house? If the home you want to purchase costs $500k and will go for $700k in three years.

Repair and taxes: $10,000 per year. A better bet is this T-Bond, which offers a 5% return.

And this will be our discount rate. SOLUTION Using those values in the NPV calculator, we arrive at an NPV of $77k.

This ought to be our discount rate.

We can even compute the Internal Rate of Return (IRR), which is 10%. That is double the yield of a T-Bond: 5%.

But if the risk of buying that house was more than double the risk of buying from a safer source, it is not advisable.

The only true thing in this calculation is the exact amount you invest. Everything else is guesswork. But then, let us imagine a $650,000 sale price and maintenance costs double the hoped for.

 Applications, caveats, and alternatives to net present value

The net present value (NPV) metric enjoys being one of the most popular ways since it is relatively straightforward to use and ascertain if a project or investment is worthwhile. Used to assess whether there is profit or loss potential, positive NPV being a financially viable opportunity and negative NPV implying anticipated loss. NPV is an immiscible tool within discounted cash flow (DCF) analysis for comparing different investments, but not because it can't absorb every project with a positive return for a company or an individual.

NPV, like any other financial figure, is as good as the assumptions and estimates you use to get there while being accurate. The inputs may have considerable discrepancies, and you need to add a cushion for any hidden in case of launching a project or steering it once it is on the ground.

An alternative to net present value is its popularity within the industry as the payback period, which is the IRR time until it equals zero. This is not a good method for long term investments, as the payback method fails to account for the time value of money. It assumes zero earnings beyond that and it can not explain a large isolated jump in free cash flows

NPV, on its own, does not necessarily give a full picture of the product losses overall. It is typically employed with other tools, such as the internal rate of return (IRR).

Since NPV alone doesn't show the overall gains or losses, it is often used with other tools like the internal rate of return (IRR).

 Financial caution

Basic online NPV calculators — a simple tool with which you can get going calculating the Net Present Value of any investment. Of course, this is one piece of a much larger puzzle that I only touched on briefly. When it comes to major financial decisions and future-binding obligations like locking in a bank deposit, for instance, always ask for professional advice. Remember, use the insights from the calculator at your own risk.