Calculate the NPV of an investment using a series of cash flows and a discount rate.
Enter details to see NPV
Understanding Net Present Value (NPV)
Net Present Value (NPV) is a fundamental financial metric used to evaluate the profitability of an investment or project. It represents the difference between the present value of future cash inflows and the present value of cash outflows over a period of time. In simpler terms, NPV helps determine if an investment is likely to be profitable by considering the time value of money. A positive NPV suggests that the projected earnings from an investment will be more than the anticipated costs, making it a potentially worthwhile venture. Conversely, a negative NPV indicates that the investment may not be profitable.
The NPV calculation is crucial for financial decision-making, helping businesses and investors choose between competing projects or investments. It's widely used in capital budgeting and strategic planning.
The NPV Formula
The formula for NPV is as follows:
NPV = Σ [ CFt / (1 + r)^t ] - Initial Investment
Where:
CFt: The net cash flow for period t.
r: The discount rate (also known as the required rate of return or hurdle rate). This represents the minimum acceptable rate of return on an investment.
t: The time period (year, quarter, etc.) in which the cash flow occurs.
Initial Investment: The cost of the investment at time 0 (often represented as a negative cash flow in the series).
The term CFt / (1 + r)^t calculates the present value of the cash flow for each specific period. By summing these present values and subtracting the initial investment, we arrive at the Net Present Value.
How to Use This Calculator
Discount Rate (%): Enter the annual discount rate you wish to use for your calculation. This is the rate of return you require from your investment.
Cash Flows: Enter the expected net cash flows for each period (e.g., year) of the investment. The first cash flow typically represents the initial investment (which is usually negative), followed by expected inflows or outflows for subsequent periods. Separate each cash flow value with a comma.
Calculate NPV: Click the "Calculate NPV" button.
The result will show the calculated Net Present Value. A positive NPV generally suggests a profitable investment, while a negative NPV suggests the opposite.
NPV in Excel
Microsoft Excel has a built-in function for calculating NPV: =NPV(rate, value1, [value2], ...).
The rate argument is the discount rate per period.
The value1, [value2], ... arguments are the cash flows. Importantly, in Excel's NPV function, the cash flows should represent periods 1, 2, 3, etc. The initial investment (at time 0) is typically subtracted *outside* the NPV function.
For example, to calculate the NPV of an investment with an initial cost of $10,000 and expected cash flows of $3,000, $4,000, and $5,000 over the next three years, with a discount rate of 10%, you would use the Excel formula:
=NPV(0.10, 3000, 4000, 5000) - 10000
This calculator aims to replicate that logic for you to quickly assess investment opportunities.
function calculateNPV() {
var discountRateInput = document.getElementById("discountRate");
var cashFlowsInput = document.getElementById("cashFlows");
var resultDiv = document.getElementById("result");
var discountRate = parseFloat(discountRateInput.value);
var cashFlowsString = cashFlowsInput.value.trim();
var cashFlows = [];
resultDiv.innerHTML = "Enter details to see NPV";
resultDiv.classList.remove("error");
if (isNaN(discountRate) || discountRate < 0) {
resultDiv.innerHTML = "Please enter a valid discount rate (0 or greater).";
resultDiv.classList.add("error");
return;
}
if (cashFlowsString === "") {
resultDiv.innerHTML = "Please enter the cash flows.";
resultDiv.classList.add("error");
return;
}
var flows = cashFlowsString.split(',');
for (var i = 0; i 0) {
initialInvestment = cashFlows[0]; // This is the cash flow at time 0
// If initial investment is negative, it's an outflow. If positive, it's unusual for time 0.
// The Excel NPV formula structure requires subtracting the initial investment if it's not included in the first cash flow argument.
}
var rateDecimal = discountRate / 100;
// Sum the present value of cash flows from period 1 onwards
for (var t = 1; t < cashFlows.length; t++) {
var cashFlow = cashFlows[t];
npv += cashFlow / Math.pow(1 + rateDecimal, t);
}
// Subtract the initial investment (from period 0) from the sum of present values of future cash flows.
npv -= initialInvestment;
resultDiv.innerHTML = "NPV: " + npv.toFixed(2);
if (npv < 0) {
resultDiv.style.backgroundColor = "#dc3545"; // Red for negative NPV
} else {
resultDiv.style.backgroundColor = "var(–success-green)"; // Green for positive or zero NPV
}
}