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NPV Calculator

Calculate Net Present Value by discounting future cash flows step by step with detailed explanations.

Time Value of Money

Understand how money today is worth more than the same amount in the future

Step-by-Step Calculation

See each cash flow discounted with clear explanations

Investment Decision

Get clear accept/reject recommendations based on NPV

Cash Flow Timeline

Visualize cash flows over the investment period

Investment Parameters

Cash Flows

Calculation Steps

Enter values and click Calculate to see step-by-step breakdown

Results

Total PV of Cash Flows $0.00
Initial Investment -$100,000.00
Net Present Value $0.00
Calculate to see investment decision

Cash Flow Timeline

Timeline will appear after calculation

How to Use

  1. Enter your initial investment amount
  2. Set your discount rate (required rate of return)
  3. Add expected cash flows for each year
  4. Click "Calculate NPV" to see the results
  5. Review the step-by-step discounting process

Limitations

  • Assumes constant discount rate over time
  • Does not account for inflation separately
  • Cash flows are assumed to occur at year-end
  • Does not consider reinvestment of cash flows

Examples & Anti-patterns

Good Practice

Use Appropriate Discount Rate

Choose a discount rate that reflects the risk level of the investment and your opportunity cost of capital.

// Low-risk government bonds: 3-5%
// Corporate projects: 8-12%
// High-risk startups: 20-30%

// Match rate to risk level!
Common Mistake

Ignoring Terminal Value

For long-term investments, forgetting to include terminal value can significantly underestimate NPV.

// Wrong: Only counting 5 years of cash flows
NPV = CF1/(1+r) + ... + CF5/(1+r)^5

// Better: Include terminal value
NPV = CFs + Terminal Value/(1+r)^n

Frequently Asked Questions

Use your weighted average cost of capital (WACC) for company projects, or the expected return on alternative investments for personal decisions. Higher risk investments warrant higher discount rates.

An NPV of zero means the investment earns exactly your required rate of return. You might accept it if there are strategic benefits, but it doesn't create additional value.

NPV gives you the absolute value created in dollars, while IRR (Internal Rate of Return) gives the percentage return. NPV is generally preferred because it accounts for the scale of investment.

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