NPV Calculator

About Net Present Value (NPV)

NPV calculates the present value of future cash flows minus the initial investment, helping evaluate investment profitability.

Key Formulas

• NPV: Σ(Cash Flow ÷ (1 + Discount Rate)^Period) - Initial Investment
• IRR: Discount rate where NPV = 0
• Profitability Index: (NPV + Initial Investment) ÷ Initial Investment

Analysis Types

• Simple: Equal annual cash flows over project life
• Detailed: Variable cash flows for each year
• Comparison: Comprehensive analysis for comparing projects

How to Use

1. Choose your analysis type
2. Enter initial investment amount
3. Set appropriate discount rate (cost of capital)
4. For simple analysis: enter project life and annual cash flow
5. For detailed analysis: enter cash flow for each year
6. Click Calculate to see comprehensive NPV analysis

Decision Rules

• NPV > 0: Accept project - creates value
• NPV = 0: Indifferent - breaks even
• NPV < 0: Reject project - destroys value
• IRR > Discount Rate: Additional confirmation to accept
• Profitability Index > 1: Efficient use of capital

Important Considerations

• Choose appropriate discount rate based on project risk
• Consider inflation and risk factors
• NPV assumes cash flows can be reinvested at discount rate
• Compare projects of similar scale and risk
• Consider qualitative factors alongside NPV

Applications

• Capital budgeting decisions
• Equipment purchase evaluation
• Real estate investments
• Business acquisition analysis
• Project portfolio management

Try Sample Calculation

Click "Load Sample" to see typical NPV analysis with example investment scenarios.