Discounted Rate of Return Calculator .drr-calculator-container { font-family: -apple-system, BlinkMacSystemFont, "Segoe UI", Roboto, Helvetica, Arial, sans-serif; max-width: 800px; margin: 0 auto; background: #fff; padding: 20px; border-radius: 8px; box-shadow: 0 2px 10px rgba(0,0,0,0.1); } .drr-header { text-align: center; margin-bottom: 30px; background-color: #2c3e50; color: white; padding: 20px; border-radius: 8px 8px 0 0; margin: -20px -20px 20px -20px; } .drr-grid { display: grid; grid-template-columns: 1fr 1fr; gap: 20px; } @media (max-width: 600px) { .drr-grid { grid-template-columns: 1fr; } } .drr-input-group { margin-bottom: 15px; } .drr-input-group label { display: block; margin-bottom: 5px; font-weight: 600; color: #333; } .drr-input-group input { width: 100%; padding: 10px; border: 1px solid #ddd; border-radius: 4px; font-size: 16px; box-sizing: border-box; } .drr-input-group input:focus { border-color: #3498db; outline: none; } .section-title { grid-column: 1 / -1; font-size: 1.1em; color: #2c3e50; border-bottom: 2px solid #eee; padding-bottom: 5px; margin-top: 10px; } .drr-btn { grid-column: 1 / -1; background-color: #27ae60; color: white; border: none; padding: 15px; font-size: 18px; font-weight: bold; border-radius: 4px; cursor: pointer; transition: background 0.3s; margin-top: 10px; } .drr-btn:hover { background-color: #219150; } .drr-results { margin-top: 25px; background-color: #f8f9fa; padding: 20px; border-radius: 4px; border-left: 5px solid #3498db; display: none; } .drr-result-item { display: flex; justify-content: space-between; margin-bottom: 10px; padding-bottom: 10px; border-bottom: 1px solid #e9ecef; } .drr-result-item:last-child { border-bottom: none; margin-bottom: 0; padding-bottom: 0; } .drr-result-label { color: #555; font-weight: 500; } .drr-result-value { font-weight: 700; color: #2c3e50; font-size: 1.1em; } .npv-highlight { color: #27ae60; font-size: 1.3em; } .drr-content { margin-top: 40px; line-height: 1.6; color: #444; } .drr-content h2 { color: #2c3e50; border-bottom: 1px solid #ddd; padding-bottom: 10px; margin-top: 30px; } .drr-content p { margin-bottom: 15px; } .drr-content ul { margin-bottom: 15px; padding-left: 20px; } .drr-content li { margin-bottom: 8px; } .info-box { background-color: #e8f4fd; padding: 15px; border-radius: 4px; margin-bottom: 20px; border-left: 4px solid #3498db; }

Discounted Rate of Return Calculator

Calculate Net Present Value (NPV) & Profitability Index

Investment Parameters

Initial Investment ($)

Discount Rate (%)

Projected Cash Flows (Next 5 Years)

Year 1 Cash Flow ($)

Year 2 Cash Flow ($)

Year 3 Cash Flow ($)

Year 4 Cash Flow ($)

Year 5 Cash Flow ($)

Calculation Results

Total Present Value (PV): $0.00

Initial Investment: -$0.00

Net Present Value (NPV): $0.00

Profitability Index (PI): 0.00

Verdict: –

Understanding Discounted Rate of Return

When analyzing investments, money received in the future is not worth as much as money in hand today due to inflation, opportunity costs, and risk. The Discounted Rate of Return Calculator (often utilized to find Net Present Value or NPV) helps investors determine the true profitability of a project by adjusting future cash flows back to their present value.

Key Concept: If the NPV is positive, the projected earnings (in today's dollars) exceed the anticipated costs, suggesting the investment is likely profitable given the specified discount rate.

How It Works

This calculator uses the Discounted Cash Flow (DCF) method. It takes the future expected income from an investment and "discounts" it back to today's value using a required rate of return (the discount rate).

The Formula

The mathematical logic used in this calculator relies on the Present Value formula for each year:

PV = CF / (1 + r)^n

PV = Present Value of the specific cash flow
CF = Cash Flow in year n
r = Discount Rate (expressed as a decimal)
n = Year number (1, 2, 3…)

The Net Present Value (NPV) is simply the sum of all Present Values minus the Initial Investment.

Example Calculation

Imagine you invest $50,000 today in a business upgrade. You expect it to generate $15,000 per year for the next 5 years. Your required rate of return (Discount Rate) is 10%.

Year 1 PV: $15,000 / (1.10)^1 = $13,636.36
Year 2 PV: $15,000 / (1.10)^2 = $12,396.69
Year 3 PV: $15,000 / (1.10)^3 = $11,269.72
Year 4 PV: $15,000 / (1.10)^4 = $10,245.20
Year 5 PV: $15,000 / (1.10)^5 = $9,313.82
Total PV: $56,861.79
NPV: $56,861.79 – $50,000 = $6,861.79

Since the NPV is positive, the investment yields a return higher than the 10% discount rate.

What is the Discount Rate?

The discount rate is a critical input. It represents the rate of return you could earn on an alternative investment of similar risk. For corporate finance, this is often the Weighted Average Cost of Capital (WACC). For individual investors, it might be the expected return of the stock market (e.g., 7-10%) or the rate of a risk-free bond plus a risk premium.