Daily to Annual Interest Rate Calculator

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Net Present Value (NPV) Calculator

.calculator-container { font-family: sans-serif; border: 1px solid #ccc; padding: 20px; border-radius: 8px; max-width: 600px; margin: 20px auto; background-color: #f9f9f9; } .calculator-inputs { display: grid; grid-template-columns: 1fr; gap: 15px; margin-bottom: 20px; } .input-group { display: flex; flex-direction: column; } .input-group label { margin-bottom: 5px; font-weight: bold; color: #333; } .input-group input { padding: 10px; border: 1px solid #ddd; border-radius: 4px; font-size: 1rem; } button { background-color: #4CAF50; color: white; padding: 12px 20px; border: none; border-radius: 4px; cursor: pointer; font-size: 1rem; transition: background-color 0.3s ease; } button:hover { background-color: #45a049; } .calculator-results { margin-top: 20px; padding: 15px; background-color: #e7f3fe; border: 1px solid #b3d7f7; border-radius: 4px; font-size: 1.1rem; color: #333; text-align: center; } .calculator-results strong { color: #0056b3; } function calculateNPV() { var initialInvestment = parseFloat(document.getElementById("initialInvestment").value); var discountRate = parseFloat(document.getElementById("discountRate").value); var cashFlowsInput = document.getElementById("cashFlows").value; if (isNaN(initialInvestment) || isNaN(discountRate) || cashFlowsInput.trim() === "") { document.getElementById("result").innerHTML = "Error: Please enter valid numbers for all fields."; return; } var cashFlowsArray = cashFlowsInput.split(',').map(function(cf) { return parseFloat(cf.trim()); }); var invalidCashFlow = false; for (var i = 0; i < cashFlowsArray.length; i++) { if (isNaN(cashFlowsArray[i])) { invalidCashFlow = true; break; } } if (invalidCashFlow) { document.getElementById("result").innerHTML = "Error: One or more cash flows are not valid numbers."; return; } var discountRateDecimal = discountRate / 100; var npv = -initialInvestment; for (var t = 0; t 0) { resultText = "The Net Present Value (NPV) is $" + npv.toFixed(2) + ". This project is potentially profitable."; } else if (npv < 0) { resultText = "The Net Present Value (NPV) is $" + npv.toFixed(2) + ". This project is likely unprofitable."; } else { resultText = "The Net Present Value (NPV) is $" + npv.toFixed(2) + ". This project is expected to break even."; } document.getElementById("result").innerHTML = resultText; }

Understanding Net Present Value (NPV)

Net Present Value (NPV) is a crucial financial metric used in capital budgeting and investment appraisal to analyze the profitability of a projected investment or project. It represents the difference between the present value of cash inflows and the present value of cash outflows over a period of time. In simpler terms, NPV tells you how much a project is worth today, considering the time value of money.

The core principle behind NPV is that a dollar today is worth more than a dollar in the future due to its potential earning capacity. The 'discount rate' used in the NPV calculation reflects this time value of money and the risk associated with the investment. A higher discount rate implies higher risk or a greater opportunity cost, leading to a lower present value of future cash flows.

How to Interpret NPV:

  • Positive NPV (NPV > 0): The project is expected to generate more value than it costs, indicating potential profitability. It should be considered for acceptance.
  • Negative NPV (NPV < 0): The project is expected to cost more than the value it generates. It should generally be rejected.
  • Zero NPV (NPV = 0): The project is expected to generate exactly enough value to cover its costs. It's a break-even scenario, and the decision might depend on other strategic factors.

The NPV Formula:

The formula for NPV is:

NPV = Σ [ CFt / (1 + r)t ] - C0

Where:

  • CFt = Net cash flow during period t
  • r = Discount rate (as a decimal)
  • t = The period number (e.g., 1 for the first year, 2 for the second year, etc.)
  • C0 = The initial investment cost (at period 0)
  • Σ denotes the summation over all periods

Our calculator simplifies this by taking the initial investment as a negative cash flow at the start (period 0) and summing the present values of all subsequent positive or negative cash flows.

Example Calculation:

Let's consider an investment with the following details:

  • Initial Investment (C0): $100,000
  • Discount Rate (r): 10% (or 0.10)
  • Projected Cash Flows:
    • Year 1: $30,000
    • Year 2: $40,000
    • Year 3: $50,000

Using the calculator, you would enter:

  • Initial Investment: 100000
  • Discount Rate: 10
  • Cash Flows: 30000,40000,50000

The calculation would be:

  • PV of Year 1 cash flow: $30,000 / (1 + 0.10)1 = $30,000 / 1.10 = $27,272.73
  • PV of Year 2 cash flow: $40,000 / (1 + 0.10)2 = $40,000 / 1.21 = $33,057.85
  • PV of Year 3 cash flow: $50,000 / (1 + 0.10)3 = $50,000 / 1.331 = $37,565.74
  • Total Present Value of Cash Inflows: $27,272.73 + $33,057.85 + $37,565.74 = $97,896.32
  • NPV = Total Present Value of Cash Inflows – Initial Investment
  • NPV = $97,896.32 – $100,000 = -$2,103.68

In this example, the NPV is negative (-$2,103.68), suggesting that the project is not financially viable at a 10% discount rate and should likely be rejected.

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