Net present value and supporting figures
The initial investment occurs now, and each entered cash flow occurs at the end of its corresponding year. Future negative cash flows are allowed. All flows are discounted at the same annual rate.
To compare how long projected inflows take to recover the initial cost, the Payback Period Calculator provides a recovery-time measure.
The formula
The initial investment occurs now, and each entered cash flow occurs at the end of its corresponding year. Future negative cash flows are allowed. All flows are discounted at the same annual rate.
Worked net present value example
An initial cost of 10,000 followed by three annual inflows of 4,000 gives a future-flow present value of 9,947.41 at a 10% discount rate. NPV is −52.59, although the undiscounted surplus is 2,000.
How to use this calculator
- Enter initial investment, annual discount rate.
- Set annual cash flows after initial investment using the stated units or choices.
- Calculate and compare net present value, present value of future flows, undiscounted net surplus, cash-flow years.
Choosing inputs for net present value
Enter net cash flow rather than accounting profit. Include operating receipts and payments that belong to the project, and enter additional costs as negative flows. The initial investment control accepts a positive cost because the calculation subtracts it automatically; do not enter that cost again in the first annual cash-flow slot.
A discount rate describes the time value and risk adjustment you choose for this analysis. A positive NPV means the entered stream exceeds the initial cost after discounting at that rate. A negative value means it falls short under those assumptions, rather than proving that the project can never be profitable.
Interpreting net present value
Timing matters even when the undiscounted total is unchanged. A larger payment late in the project contributes less present value than the same payment early on at a positive rate. Insert a zero for a skipped year so later cash flows keep their proper positions. This tool uses equal annual intervals; irregular calendar dates need a dated-cash-flow method.
Assumptions & limitations
What this calculation assumes
- All future flows occur at year end and use one currency.
- The discount rate remains constant over the project.
What to keep in mind
- Taxes, inflation, terminal value, and financing flows are included only if present in the entered net cash flows. This is not an XNPV calculation.
Common questions
Can I include a negative future flow?
Yes. Enter it with a minus sign in its correct year; NPV can value multiple changes of cash-flow sign.
Does a zero discount rate work?
Yes. NPV becomes the sum of future net cash flows minus the initial investment.
Where does a terminal sale value belong?
Include the net sale proceeds in the cash flow for the year in which the sale occurs. The tool does not add a terminal value automatically.
Sources & further reading
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