NPV Calculator
Calculate Net Present Value (NPV) to evaluate the profitability of an investment.
Cash Flow Details
NPV Analysis
Net Present Value (NPV)
+₹4,443
Positive NPV indicates a profitable investment.
Is It Worth The Investment?
NPV is the “God Metric” in corporate finance. It answers the question: “Are we creating value?”
How it works:
- Future Money is weaker: ₹100 earned 5 years from now might only be worth ₹70 today.
- Discounting: We shrink all future cash flows back to today’s value.
- Netting:
Total Present Value of Inflows - Initial Investment.
Decision Rule
- NPV > 0: ACCEPT. Adding value to the firm.
- NPV < 0: REJECT. Destroying value.
- NPV = 0: Indifferent.
Frequently Asked Questions
What is NPV?
Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time.
What does a Positive NPV mean?
A positive NPV (> 0) means the investment is expected to generate profit in today's money terms. It is a 'Go' signal for investment.
What does Negative NPV mean?
A negative NPV (< 0) means the project will result in a net loss relative to the discount rate. It should usually be rejected.
What is Discount Rate?
It is the required rate of return or the cost of capital. It accounts for the risk and the time value of money.
What is the Time Value of Money?
The concept that ₹100 today is worth MORE than ₹100 a year from now, because you could invest it and earn interest.
NPV vs IRR?
NPV gives the value in absolute currency terms. IRR gives the percentage return. NPV is generally considered superior for comparing mutually exclusive projects.
Does NPV account for inflation?
Indirectly, via the Discount Rate. The discount rate usually includes an inflation premium.
Formula for NPV?
`NPV = Sum [ CashFlow / (1+r)^t ] - Initial Investment`. Where r is discount rate and t is time period.
What if NPV is Zero?
It means the project earns exactly the required rate of return. It neither creates nor destroys value physically, but covers costs.
Why is NPV better than Payback Period?
Payback Period ignores cash flows after the payback point and ignores the time value of money. NPV considers ALL cash flows.