Npv with Discount Rate Calculator

NPV with Discount Rate Calculator

Determine the profitability of your investment using the Time Value of Money (TVM)

Projected Cash Inflows

Understanding Net Present Value (NPV) and Discount Rates

Net Present Value (NPV) is a financial metric used to evaluate the profitability of an investment or project. It represents the difference between the present value of cash inflows and the present value of cash outflows over a specific period of time.

What is the Discount Rate?

The discount rate is the interest rate used to "discount" future cash flows back to their value today. This is essential because of the Time Value of Money (TVM): a dollar today is worth more than a dollar tomorrow due to its potential earning capacity. The discount rate often reflects the risk of the project or the opportunity cost of capital.

The NPV Formula

NPV = Σ [C_t / (1 + r)^t] – C_0

• C_t = Net cash inflow during the period t
• r = Discount rate
• t = Number of time periods
• C_0 = Initial investment cost

How to Interpret Your Results

• Positive NPV: The investment's earnings exceed the anticipated costs (adjusted for inflation/risk). Typically, projects with a positive NPV are considered good investments.
• Negative NPV: The investment is expected to result in a net loss compared to the discount rate used. Generally, these projects should be avoided.
• Zero NPV: The project is expected to break even exactly, meeting the required rate of return but adding no additional value.

Practical Example

Imagine you invest $10,000 in a solar panel project. You expect to save $3,000 per year for 5 years. If your discount rate (the rate you could earn elsewhere or the cost of a loan) is 10%:

1. Year 1: $3,000 / (1.10)^1 = $2,727
2. Year 2: $3,000 / (1.10)^2 = $2,479
3. Year 3: $3,000 / (1.10)^3 = $2,254
4. Year 4: $3,000 / (1.10)^4 = $2,049
5. Year 5: $3,000 / (1.10)^5 = $1,863

Total Present Value of Inflows = $11,372.
NPV = $11,372 – $10,000 = $1,372. Since the NPV is positive, the project is financially viable.

function calculateNPV() { var initialInv = parseFloat(document.getElementById('initialInvestment').value); var rate = parseFloat(document.getElementById('discountRate').value) / 100; var resultArea = document.getElementById('resultArea'); var npvValueDisplay = document.getElementById('npvValue'); var npvStatus = document.getElementById('npvStatus'); var npvBreakdown = document.getElementById('npvBreakdown'); if (isNaN(initialInv) || isNaN(rate)) { alert("Please enter valid numbers for Initial Investment and Discount Rate."); return; } var totalPV = 0; var cashFlows = []; for (var i = 1; i 0) { resultArea.style.backgroundColor = '#e8f6ed'; npvStatus.style.color = '#27ae60'; npvStatus.innerText = 'Positive NPV (Profitable)'; npvValueDisplay.style.color = '#27ae60'; } else if (npv < 0) { resultArea.style.backgroundColor = '#fdedec'; npvStatus.style.color = '#c0392b'; npvStatus.innerText = 'Negative NPV (Unprofitable)'; npvValueDisplay.style.color = '#c0392b'; } else { resultArea.style.backgroundColor = '#f4f6f7'; npvStatus.style.color = '#7f8c8d'; npvStatus.innerText = 'Zero NPV (Neutral)'; npvValueDisplay.style.color = '#7f8c8d'; } npvBreakdown.innerHTML = 'Total Present Value of Inflows: $' + totalPV.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}) + 'Subtracting Initial Investment of $' + initialInv.toLocaleString(); }