Calculate the Net Present Value of an investment adjusted for projected inflation rates.
Your Net Present Value adjusted for inflation is:
Understanding NPV and Inflation
Net Present Value (NPV) is a financial metric used to evaluate the profitability of an investment. However, when planning for the long term, the purchasing power of money decreases due to inflation. To get an accurate picture of a project's value, we must account for this decline.
This calculator uses the Fisher Equation approach to determine the Nominal Discount Rate. This rate combines your desired real return (profitability) with the expected inflation rate to provide a more realistic hurdle rate for your future cash flows.
The Formula
First, we calculate the Nominal Discount Rate (i):
(1 + i) = (1 + r) × (1 + e)
Where:
i = Nominal Discount Rate
r = Real Discount Rate (Target Return)
e = Expected Inflation Rate
Then, the NPV is calculated by discounting future cash flows at the nominal rate:
Imagine you invest 10,000 into a project that generates 3,000 per year for 4 years. You want a 5% real return, and you expect 2% annual inflation.
Metric
Value
Nominal Rate
((1 + 0.05) * (1 + 0.02)) – 1 = 7.1%
Year 1 Cash Flow (Discounted)
3,000 / (1.071)¹ = 2,801.12
Year 4 Cash Flow (Discounted)
3,000 / (1.071)⁴ = 2,280.34
Final NPV
Total Discounted Flows – 10,000
If the resulting NPV is positive, the project is considered viable after accounting for both your required return and the erosion of money's value over time.
function calculateInflationAdjustedNPV() {
var initialCost = parseFloat(document.getElementById('initialInvestment').value);
var annualInflow = parseFloat(document.getElementById('annualCashFlow').value);
var years = parseInt(document.getElementById('projectYears').value);
var realRate = parseFloat(document.getElementById('realDiscountRate').value) / 100;
var inflation = parseFloat(document.getElementById('inflationRate').value) / 100;
// Validation
if (isNaN(initialCost) || isNaN(annualInflow) || isNaN(years) || isNaN(realRate) || isNaN(inflation)) {
alert("Please enter valid numeric values in all fields.");
return;
}
if (years <= 0) {
alert("Duration must be at least 1 year.");
return;
}
// Calculate Nominal Discount Rate using Fisher Equation
// (1 + nominal) = (1 + real) * (1 + inflation)
var nominalRate = ((1 + realRate) * (1 + inflation)) – 1;
var totalPresentValue = 0;
// Calculate Present Value of each year's cash flow
for (var t = 1; t = 0) {
resultVal.style.color = "#27ae60";
document.getElementById('resultText').innerText = "Positive NPV! The investment is profitable:";
} else {
resultVal.style.color = "#e74c3c";
document.getElementById('resultText').innerText = "Negative NPV. The investment may not meet your targets:";
}
rateDetail.innerHTML = "Note: We used a calculated Nominal Discount Rate of " + (nominalRate * 100).toFixed(2) + "% to account for your " + (inflation * 100).toFixed(1) + "% inflation expectation.";
// Scroll to result smoothly
resultBox.scrollIntoView({ behavior: 'smooth', block: 'nearest' });
}