NPV Calculator
Calculate the Net Present Value of future cash flows at a given discount rate. Determine whether an investment creates or destroys financial value.
CASH FLOWS
NET PRESENT VALUE
โน20,401.612
โ Investment is profitable at 10% discount rate
| Year | Cash Flow | Present Value |
|---|---|---|
| 0 | โน-1,00,000 | โน-1,00,000 |
| 1 | โน30,000 | โน27,272.727 |
| 2 | โน35,000 | โน28,925.62 |
| 3 | โน40,000 | โน30,052.592 |
| 4 | โน50,000 | โน34,150.673 |
What is NPV?
Net Present Value (NPV) is the difference between the present value of all future cash inflows and the initial investment cost. It answers the fundamental question: "Is this investment worth more than it costs?"
NPV Formula
NPV = ฮฃ [Cash Flow_t / (1 + r)^t]
Where r is the discount rate (your required return) and t is the time period.
Decision Rule
- NPV > 0: โ Investment creates value โ accept
- NPV = 0: โ๏ธ Investment breaks even at your required return
- NPV < 0: โ Investment destroys value โ reject
Choosing the Discount Rate
The discount rate represents your opportunity cost โ what you could earn elsewhere at similar risk. Common choices: risk-free rate (government bond yield ~7%), equity returns (12-15%), or WACC for corporate projects.
Where:
- NPV = Net Present Value (total value created/destroyed)
- CFโ = Cash flow at time period t (negative = investment)
- r = Discount rate (opportunity cost / required return)
- t = Time period (0, 1, 2, ... n years)
๐ Worked Example
Invest โน1L, earn โน30K, โน35K, โน40K, โน50K at 10% discount
NPV = -1,00,000 + 27,273 + 28,926 + 30,053 + 34,151= NPV = +โน20,402 โ Invest! โ