Loading...
Calculate net present value (NPV) to evaluate investment profitability. Discount future cash flows, see present value breakdown, and get profitability index.
NPV is the difference between the present value of future cash inflows and the initial investment cost, discounted at a required rate of return. A positive NPV means the investment creates value above the discount rate.
| Period | Cash Flow | Present Value |
|---|---|---|
| 0 (Initial) | -$10,000.00 | -$10,000.00 |
| 1 | $3,000.00 | $2,727.27 |
| 2 | $4,000.00 | $3,305.79 |
| 3 | $5,000.00 | $3,756.57 |
| Total | $2,000.00 | -$210.37 |
Formula
NPV = −C₀ + Σ [CFₜ ÷ (1 + r)ᵗ]C₀ = initial investment (outflow at time zero)
CFₜ = cash flow in period t (positive = inflow, negative = outflow)
r = discount rate (required rate of return or WACC)
t = period number (year 1, 2, 3…)
Worked Example
$10,000 investment, cash flows of $3K / $4K / $5K, 10% discount rate
Did you know? NPV was formally introduced into financial theory by Irving Fisher in 1907. It's the preferred capital budgeting method of most Fortune 500 CFOs because it directly measures value creation in dollars.
Sources
Estimate monthly spousal support using income disparity and marriage length. Educational use only.
Generate a full amortization schedule showing each payment's principal and interest split.
Calculate auto loan payments with down payment, trade-in, and amortization schedule.
Find break-even units and revenue. Analyze profit at any volume with contribution margin.
Calculate capital gains tax with short-term and long-term rates. Includes NIIT and residence exclusion.
Calculate expected returns using CAPM based on beta, risk-free rate, and market return.