Net Present Value Calculator
Evaluate investment profitability by calculating the Net Present Value (NPV) to help you make informed financial decisions.
Cash Flows:
What is Net Present Value (NPV)?
NPV is a financial metric that measures the profitability of an investment or project by comparing the present value of cash inflows with the present value of cash outflows over time.
Formula for Net Present Value
The NPV is calculated using the formula::
NPV = -C₀ + Σ (Cₜ / (1 + r)ᵗ)
Where:
| Variable | Description |
|---|---|
| C₀ | Initial Investment |
| Cₜₜ | Net Cash Flow during period 't' |
| r | Discount Rate |
| t | Number of Time Periods |
Interpreting NPV Results
- If NPV > 0: The investment is profitable and worth considering.
- If NPV = 0: The investment will neither gain nor lose value.
- If NPV < 0: The investment is expected to lose value and should be avoided.
Benefits of Using NPV
- Considers the time value of money.
- Provides a clear criterion for investment decisions.
- Enables comparison between various investment opportunities.