Enter the expected revenue or savings for each year. Leave blank if zero.
Total Cash Inflows:–
Initial Investment:–
Net Value (Undiscounted):–
Return on Investment (ROI):–
This calculation assumes a 0% discount rate, representing the raw nominal profit.
Understanding Net Present Value Without a Discount Rate
The concept of Net Present Value (NPV) typically relies heavily on a discount rate to account for the "time value of money"—the idea that a dollar today is worth more than a dollar tomorrow. However, there are scenarios where investors or business owners ask how to calculate the value of an investment without applying this rate. This is technically known as the Undiscounted Net Cash Flow or simply the Net Profit of the project.
What Does "No Discount Rate" Imply?
When you calculate NPV without a discount rate, you are effectively setting the discount rate (r) to 0%. Mathematically, this removes the denominator from the standard NPV formula. Instead of discounting future cash flows to see their present worth, you simply sum up all future cash inflows and subtract the initial investment.
The Simplified Formula: Net Value = (Sum of All Future Cash Flows) – Initial Investment
When Should You Use This Calculation?
While finance professionals almost always prefer standard NPV, calculating the undiscounted value is useful in specific contexts:
Simple Payback Analysis: It provides a quick look at whether a project generates more cash than it costs in nominal terms.
Short-Term Projects: For projects lasting only a few months, inflation and opportunity costs (discount factors) may have negligible impact.
Zero-Interest Environments: If capital is obtained at 0% interest and inflation is zero (a theoretical scenario), the undiscounted value equals the true NPV.
Preliminary Screening: If a project is not profitable even without a discount rate (i.e., the Net Value is negative), it will certainly be negative when a discount rate is applied. This serves as a quick "kill switch" for bad ideas.
Step-by-Step Calculation Guide
To perform this calculation manually or using the tool above, follow these steps:
Identify Initial Outlay: Determine the total upfront cost required to start the project. This is treated as a negative value.
Forecast Cash Flows: Estimate the net cash inflow (revenue minus operating expenses) for every period of the project's life.
Sum the Inflows: Add up all the positive cash flows from Year 1 through the final year.
Subtract Investment: Deduct the initial outlay from the Total Cash Inflows.
Example Calculation
Imagine you invest $10,000 in a machine. You expect it to generate $3,000 per year for 5 years.
Total Inflow: $3,000 × 5 = $15,000
Initial Cost: $10,000
Net Value (Undiscounted): $15,000 – $10,000 = $5,000
In this example, your nominal profit is $5,000. However, remember that this does not account for inflation or what you could have earned by investing that $10,000 elsewhere.
function calculateUndiscountedNPV() {
// Get Initial Investment
var investmentInput = document.getElementById('initialInvestment').value;
var investment = parseFloat(investmentInput);
// Get Cash Flows (Year 1 to 5)
var cf1 = parseFloat(document.getElementById('cf1').value) || 0;
var cf2 = parseFloat(document.getElementById('cf2').value) || 0;
var cf3 = parseFloat(document.getElementById('cf3').value) || 0;
var cf4 = parseFloat(document.getElementById('cf4').value) || 0;
var cf5 = parseFloat(document.getElementById('cf5').value) || 0;
// Validation: Ensure investment is a number
if (isNaN(investment)) {
alert("Please enter a valid number for the Initial Investment.");
return;
}
// Calculate Total Cash Inflow (Sum of positive flows)
var totalInflow = cf1 + cf2 + cf3 + cf4 + cf5;
// Calculate Net Value (Undiscounted NPV)
// Formula: Sum(Cash Flows) – Initial Investment
var netValue = totalInflow – investment;
// Calculate ROI (Return on Investment)
// Formula: (Net Value / Investment) * 100
var roi = 0;
if (investment > 0) {
roi = (netValue / investment) * 100;
}
// Format numbers for display (Currency)
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
minimumFractionDigits: 2
});
// Display Results
document.getElementById('resTotalInflow').innerText = formatter.format(totalInflow);
document.getElementById('resInitial').innerText = formatter.format(investment);
document.getElementById('resNetValue').innerText = formatter.format(netValue);
document.getElementById('resROI').innerText = roi.toFixed(2) + "%";
// Add color styling to the Net Value result
var resultElement = document.getElementById('resNetValue');
if (netValue >= 0) {
resultElement.style.color = "#27ae60"; // Green for profit
} else {
resultElement.style.color = "#c0392b"; // Red for loss
}
// Show result box
document.getElementById('result').style.display = 'block';
}