NPV Calculator

What is Net Present Value (NPV)?

Net Present Value is a financial metric that calculates the present value of all future cash flows minus the initial investment. It helps determine whether an investment will be profitable by accounting for the time value of money.

NPV Formula

Where CFₜ is the cash flow at time t, r is the discount rate, and t is the time period.

Key Metrics Explained

• IRR (Internal Rate of Return): The discount rate that makes NPV equal to zero. Higher IRR indicates better investment.
• Profitability Index: Ratio of present value of cash flows to initial investment. Values > 1 indicate profitable investments.
• Payback Period: Time required to recover the initial investment from cash flows. Shorter periods are generally preferred.

Use Cases

• • Evaluating capital investment projects
• • Comparing multiple investment opportunities
• • Business expansion decisions
• • Equipment purchase analysis
• • Real estate investment evaluation
• • Startup funding decisions