Net Present Value Calculator

Net Present Value Formula:

Net Present Value = ( -1 * Initial Investment ) + ( Cash1 / ( 1 + Rate ) ) + ( Cash2 / ( ( 1 + Rate ) ^ 2 ) ) + ( Cash3 / ( ( 1 + Rate ) ^ 3 ) ) ...

Net Present Value Definition

Net Present Value is a frequently used financial calculation used in the business world to define the current value of cash inflows produced by a project, asset, product, or other investment activities after subtracting the associated costs. The Net Present Value is difficult to calculate by hand since the formula is very complex. The general idea is to be able to predict as closely as possible what today’s dollars will yield at a future specified date (usually the project end date or a sales launch date) in terms of dollar value. .

Employees of Corporations, Real Estate Development Companies, Financial Institutions, and many other industry businesses utilize the NPV function as a tool to provide more accurate reporting on the Return on Investment of each individual project, product launch, or other short or long term purchase. In order for departments within a business to predict, monitor, and balance a positive budget, NPV and many other financial calculations must be made on a daily basis.

While the underlying components of the NPV formula are complicated, by using our handy Net Present Value Calculator you will reach the same results that the pros do. However, it is important to at least have a basic understanding of what the 3 major pieces of the Net Present Value formula are and what they mean.

Initial Investment (field 1)

The initial investment field is fairly self explanatory and relates to the total cost of any expenses involved for both starting and bringing a project to completion successfully. This could include things such as: equipment or materials purchase, software costs, utilities expense, purchase of real estate or land, product launch costs, marketing expenses, legal expenses, permits, employee payroll, and more.

Discount Rate # (field 2)

The Discount Rate is the interest rate used when calculating the value of a sum of money today (NPV), and what it will be worth in the future after having accrued interest. It is a common assumption in the financial industry that cash today (here and now) is worth more than the value at a specified future date. Investors and Business Professionals who know what they are doing can earn large profits based on proper NPV projections. However, there is a sizable risk risk taken by the investor since the payout may not be as high as projected, and other factors relating to the time value of money.

Cash Flow (fields 1-10)

Cash Flows are broken down into individual line items for purchases of each tangible, and intangible purchase in a project, or departmental budget. Cash flow equates to net income produced by an asset or project plus the associated depreciation cost.

Within this automatic NPV calculator you are able to enter up to 10 separate cash flows to factor in.

How to Calculate Net Present Value

Let's be honest - sometimes the best net present value calculator is the one that is easy to use and doesn't require us to even know what the net present value formula is in the first place! But if you want to know the exact formula for calculating net present value then please check out the "Formula" box above.

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