NPV Calculator

NPV Calculator

The NPV calculator is a tool that helps you determine the value of an investment. It takes into account expenses, revenue, and capital costs. By evaluating the worth of a project or investment, it can help you decide if it's worth pursuing.

To use the NPV calculator, you'll need to enter the initial investment, discount rate, and number of years into the formula box. Then, you can specify the nature of the inflows. The calculator will show you the present value of cash inflows and the net current value.

How Does the NPV Calculator Work?

The NPV calculator can assist you in determining whether an investment or a project is worthwhile. The process involves complex calculations, and it is recommended to use an NPV calculator in India. However, it is sometimes wise to understand how it operates. Here is the formula for calculating NPV:

Now, let us understand how we can use the above formula to calculate the net present value to evaluate the worthiness of an investment.

Let's say you're considering investing in a project to develop a new software application. You estimate that the initial investment for development and marketing will be INR 100,000. Over the next five years, you expect the software to generate revenue as follows:

• Year 1: ₹20,000
• Year 2: ₹30,000
• Year 3: ₹40,000
• Year 4: ₹35,000
• Year 5: ₹25,000

To calculate the Net Present Value (NPV) of this investment, you'll need to discount each of these cash flows to their present value using a discount rate. Let's assume a discount rate of 8% per annum.

Using the formula NPV = [Cn/(1+r)^n], where n={0-5}, and substituting the values:

Now, let's calculate each NPV:

• NPV1 = ₹20,000 / (1 + 0.08)^1 = ₹18,518.52
• NPV2 = ₹30,000 / (1 + 0.08)^2 = ₹25,925.93
• NPV3 = ₹40,000 / (1 + 0.08)^3 = ₹30,247.93
• NPV4 = ₹35,000 / (1 + 0.08)^4 = ₹23,003.98
• NPV5 = ₹25,000 / (1 + 0.08)^5 = ₹15,782.66

Now, summing up all the present values of cash flows and subtracting the initial investment:

NPV = (₹18,518.52 + ₹25,925.93 + ₹30,247.93 + ₹23,003.98 + ₹15,782.66) - ₹100,000

NPV ≈ ₹113,479.02 - ₹100,000

NPV ≈ ₹13,479.02

So, this investment's Net Present Value (NPV) is approximately ₹13,479.02. Since NPV is positive, it indicates that the project is expected to generate returns greater than the initial investment, making it potentially a viable investment opportunity.

How to Calculate NPV Using the Calculator?

Here are the simple steps through which you can calculate NPV using Investkraft’s fast and accurate calculator:

1. Enter any amount in the initial investment section
2. Select a discount rate that suits you
3. Enter the number of years
4. Now choose between “Yearly Fixed Cash Inflows” and “Yearly Variable Cash Inflows” under the Nature of Cash Inflows tab
5. Now enter any value in the “Amount of Fixed Cash Inflows P.A”
6. Click on the “Invest Now” button to find out the NPV

Benefits of Finding the NPV Value

The benefits of finding the NPV value have been listed in this section:

• The NPV Calculator is a helpful tool that allows you to assess the profitability of an investment before making any financial commitments.
• By using this calculator, you can determine the present-day value of money that you expect to earn in the future. This helps you to understand the opportunity cost of your investment and make better decisions about where to allocate your funds.
• By knowing the future value of your investments, you can plan your financial goals and earn returns that beat inflation.
• Ultimately, the NPV Calculator can help you to save money and maximize your investment returns.