NPV Calculator is the easiest way to see if an investment makes sense before you commit your money.

🪙 What Does NPV Mean in the Simplest Terms?

Imagine someone offers you $100 a year from now. Would you value that $100 the same as $100 today? Probably not—since you could invest $100 now and earn interest. NPV Calculator helps you figure out exactly what future money is really worth today.

• You take all the future cash you expect and transform it into today’s value—this is called discounting.

• Then you subtract what you paid or invested at the start.

• If the result is positive, you’re making more than if you just put your money in a savings account. If it’s negative, you’d be better off saving or exploring other investments.

What Is Net Present Value (NPV)?

Net Present Value (NPV) is a financial metric that tells you whether an investment will add value today, after accounting for the time value of money. Simply put, it answers: “Is the cash I expect in the future worth more or less than what I invest now?”

Investors, entrepreneurs, and project managers use NPV to compare opportunities, prioritize projects, and decide where to allocate capital.

Why NPV Matters

1. Time Value of Money: A rupee today is worth more than a rupee tomorrow because you can invest it now.

2. Risk Adjustment: Choosing a discount rate (your cost of capital) prices in risk.

3. Objective Decisions: Positive NPV means expected returns exceed your hurdle rate; negative NPV means the opposite.

NPV Calculation Formula

Use this npv calculation formula for any number of periods:

NPV = – I₀ + R₁/(1 + i)¹ + R₂/(1 + i)² + … + Rₙ/(1 + i)ⁿ

• I₀ = initial investment (cash outflow at t = 0)

• Rₜ = net cash inflow at period t

• i = discount rate (decimal form, e.g., 10% = 0.10)

• n = number of periods (years, months, etc.)

How NPV Is Calculated (2-Year Example)

Suppose you consider a small equipment purchase:

• Initial Outlay (I₀): $200,000

• Year 1 Cash Inflow (R₁): $120,000

• Year 2 Cash Inflow (R₂): $120,000

• Discount Rate (i): 12% (0.12)

1. Year 1 PV:

PV₁ = R₁ / (1 + i)¹
    = 120000 / 1.12
    ≈ $107,143

2. Year 2 PV:

PV₂ = R₂ / (1 + i)²
    = 120000 / (1.12)²
    ≈ $95,703

3. NPV:

NPV = –200000 + 107143 + 95703
    = $2,846

A positive NPV ($2,846) means the investment is expected to generate value above your 12% cost of capital.

Manual vs. Automated NPV Calculation

• Manual Calculation: Ideal for small projects. You list cash flows, discount them, sum them, subtract the initial investment.

• NPV Calculator: Automates every step—just enter outlay, cash flows, discount rate, and get an instant result.

Try our interactive tools to simplify your analysis:

• ➡️ Worth Today Calculator (see what future cash flows are worth today)

• ➡️ Mortgage Recast Calculator (evaluate loan adjustments alongside your capital projects)

How to Calculate NPV in Excel

Excel’s NPV() function does the heavy lifting:

1. Enter cash flows in cells A1:A2 (Year 1 and Year 2).

2. Use:

=–InitialInvestment + NPV(discount_rate, A1:A2)

For example:

=–200000 + NPV(0.12, 120000, 120000)

Excel returns ₹2,846, matching the manual result.

Frequently Asked Questions (Q&A)

Q1: How to calculate net present value?
List expected cash inflows and outflows, choose a discount rate, discount each future cash flow back to present, sum them, and subtract your initial investment:

NPV = –I₀ + ∑ (Rₜ / (1 + i)ᵗ)

Q2: What is net present value?
Net Present Value (NPV) is the difference between the present value of cash inflows and outflows over time; it shows if an investment creates or destroys value after accounting for the time value of money.

Q3: How to calculate NPV?
Select a discount rate, discount each inflow: Rₜ/(1 + i)ᵗ, sum them, and subtract the initial outflow.

Q4: How to calculate NPV in Excel?
Use:

=–InitialInvestment + NPV(discount_rate, cash_flow1, cash_flow2, ...)

By mastering manual calculations and leveraging an NPV Calculator, you’ll make smarter, data-driven decisions every time—knowing exactly what your future cash flows are worth today!