NPV Calculator to CalculateDiscounted Cash Flows
The NPV Calculator on this page will help you to determine the desireability of an investment by instantly calculating its net present value.
This calculator will help you to determine what net impact a prospective investment will have on future cash flows when accounting for the time value of money -- without having to deal with time-consuming present value tables.
And not only will the calculator instantly calculate the net present value of a prospective investment, but it will also generate a discounted cash flows chart showing how it arrived at its answer.
Plus, if you are doing sensitivity analysis (what-if scenarios), the calculator will provide you with a printer friendly report that you can print out and use for your comparisons.
What is NPV?
The term NPV stands for Net Present Value, which is a Discounted Cash Flow (DCF) method used in forecasting the long run desirability of an investment (capital outlay).
Specifically, net present value discounts all expected future cash flows to the present by an expected or minimum rate of return. This expected rate of return is known as the Discount Rate, or Cost of Capital.
If the net present value of a prospective investment is a positive number, the investment is deemed to be desirable. On the other hand, if the net present value turns out to be a negative number, then the investment is deemed to be undesirable.
Furthermore, net present value analysis can also be used to determine which of two or more alternative desirable investments is the most desirable.
What is a Discounting?
Think of discounting as the opposite of compounding. In compounding you take a present amount (principal) and compound the interest earnings into the future. Whereas discounting takes a future value and discounts it back to the present (principal).
To illustrate the difference between compounding and discounting, if you were to invest $100 today in an investment that paid a 10% annual return, and you wanted to know how much your investment would be worth 1 year from now, you would compound the interest by multiplying the principal by 1 plus the rate (100 x 1.10 = $110).
Conversely, if you wanted to know how much you would need to deposit today in order for your investment to grow to $110 in 1 year, you would discount the future value by dividing it by 1 plus the rate (110 & 1.10 = $100).
What is the Discounted Cash Flow (DCF) Method?
In the case of net present value analysis, the DCF method takes each future cash flow and reduces the amount by how much of that cash flow represents interest earned if its principal portion were invested at the time investment originated.
Then, once all future cash flows have been discounted, to arrive at the net present value you then sum all discounted cash flows and subtract that amount from the original amount invested.
How is the Discount Rate Determined?
Typically, when deciding what rate to use when discounting cash flows, the rate used is equal to the highest rate you know you could earn elsewhere.
For example, if you know of two other alternative investments (A & B) and if you know with a fair amount of certainty that you could earn 6% in alternative A and alternative B would earn 5%, then use alternative A as the rate for discounting cash flows.
Why is NPV Important?
In order to demonstrate the importance of net present value analysis, suppose I ask you for $1,000 today, and in exchange I promise to pay you $200 per year for five years, and then give you an extra $100 in year six, as shown in the following cash flow chart:
Now, if you were unaware of the effects of the
on my proposal, you might say, "Wow! I could earn $100 without doing anything? Here's the $1,000!" But this is where the importance of NPV comes to light.
So is my hypothetical offer really something you should consider accepting? Well, that depends on what annual rate of return you could earn if you chose to turn down my offer and invest the $1,000 somewhere else.
For example, using the net present value calculator on this page, you will see that if you know you could earn a 5% annual return (entered as the discount rate) somewhere else, then taking me up on my offer will end up costing you $59.46 in interest earnings (the opportunity cost of giving me $1,000 today in exchange for my $1,100 in future payments, versus investing in a project offering a higher rate of return).
-$1,000.00
-$1,000.00
On the other hand, if you knew the most you could earn on any other alternative investment was a 2% annual return, then accepting my offer would result in a gain of $31.49 over what you could have earned.
-$1,000.00
-$1,000.00
By the way, if you wanted to find out the average rate of return of my hypothetical offer, you could use the
-- which uses a variation of the Discounted Cash Flow method for determining the internal rate of return from a series of cash flows. Plugging the above cash flows into the IRR calculator will reveal that my offer would yield a 2.99% average annual rate of return.
With that, let's use the NPV Calculator to calculate the difference between a capital outlay and its future discounted cash flows (net present value).
NPV Calculator
Instructions: Enter the discount rate, the optional 4-digit year of the initial cash outflow, and the amount of the initial outflow.
Next, for each applicable year, enter either an additional outflow amount, an inflow amount, or a combination of both. Note that the beginning outflow and at least one inflow must be entered before the calculator will begin the NPV calculation. Also, you only need to enter figures for the applicable years as the calculator will ignore all blank lines beyond the last entry.
Once you have entered all outflows and inflows, click the "Calculate Net Present Value" button. Note that the results will include a printable chart showing the discounting of each year's net cash flow, along with the total outflows, total inflows, total net cash flows, and total discounted cash flows (NPV).
Mouse over the blue question marks for a further explanation of each entry field. More in-depth explanations can be found in the glossary of terms located beneath the NPV Calculator.
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NPV Calculator Glossary of Terms
Discount rate: Enter the rate you want the NPV Calculator to discount the entered cash flows. Note that the discount rate is also commonly referred to as the Cost of Capital. Enter as a percentage (for .06, enter 6%).
Year of initial investment: Optional. If you would like the calculator to populate the Year column with the actual year labels, enter the 4-digit year of the initial outflow (capital outlay).
Year column: If you entered a 4-digit year above, then this column will be automatically populated with the appropriate years based on the year entered in the line above.
Outflows column: Enter the initial outflow amount on the first line (required) and then on any subsequent lines where additional amounts were invested (enter as positive values). Note that numbers entered in this column are usually entered as negative values when using an NPV spreadsheet function, however this NPV Calculator converts the values to negative for you.
Inflows column: Enter cash inflows in the years they are projected to be received. You must have at least one value in this column for the NPV calculation to begin.
Net cash flow: The is the sum of all outflows less the sum of all inflows.
Number of years: This is the total number of cash flow years that were included in the calculations -- which includes the year of the initial cash outflow.
Net Present Value: This is the total of all discounted cash flows (NPV) -- including the capital outlay. If this result is positive, the project is considered to be desirable. If the NPV is a negative number, the project is considered to be undesirable.
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你可能喜欢The payback period is the number of years needed to recover the initial cash outlay.
回收期是指收回最初现金投入所需要的年数。
The net present value(NPV)of an investment proposal is equal to the present value of its annual net cash flows after taxes less the investment's initial outlay.
一项投资的净现值等于预值未来每年税后净现金流的现值减去项目初始投资支出。
The internal rate of return(IRR)is defined as the discount rate that equates the present value of the project's future net cash flows with the project's initial cash outlay.
内部收益率是指使项目未来净现金流量的现值与该项目初始投资支出值相等时的贴现率。
If you don't have enough cash, the bank extends credit or demands that you pay up to cover the rest of your contract, often adding up to large multiples of your initial outlay.
如果你没有充足的现金，银行会为你赊账，或要求付款以完成剩下的合约，而这往往意味着你最终付出的要超过最初投入的许多倍。
There is a way to meet these objectives: allow banks to sell any assets they want, and have the government's bad bank acquire them on a consignment basis with no initial cash outlay.
有一种方法可以达到这些目标：允许银行出售任何他们想出手的资产，让政府的坏银行在寄售的基础上获得他们出售的资产，不必先期的现金支出。
There is a way to meet these objectives: allow banks to sell any assets they want, and have the government's bad bank acquire them on a consignment basis with no initial cash outlay.
有一种方法可以达到这些目标：允许银行出售任何他们想出手的资产，让政府的坏银行在寄售的基础上获得他们出售的资产，不必先期的现金支出。
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感谢您的反馈，我们会尽快进行适当修改！How to Calculate the Discount Factor or Discount Rate Value | Sapling.comBy: Madison GarciaDiscount rates, also known as discount factors, are a critical component of the time value of money. Investors can use discount rates to translate the value of future investment returns into today's dollars. If your investment provides you dividends or interest proceeds over time, you will need to calculate multiple discount rates.How to Calculate the Discount Factor or Discount Rate Valuecredit: Yozayo/iStock/GettyImagesTime Value of MoneyOne of the basic tenets of investing is that a dollar today is worth more than a dollar tomorrow. For example, say that you have the choice to receive $100 today or receive $100 in a year. During the year, you can invest the $100 received today at a rate of 5 percent. That means you'll have $105 at the end of the year. Given the choice of having $105 at the end of the year or waiting to get the original $100 at the end of the year, you would likely take the $105.Because of the value difference that timing creates, investors and financial analysts discount future cash flows to translate them into today's dollar value. This is referred to as present value.Calculating Discount RatesThe discount rate or discount factor is a percentage that represents the time value of money for a certain cash flow. To calculate a discount rate for a cash flow, you'll need to know the highest interest rate you could get on a similar investment elsewhere. To calculate the discount factor for a cash flow one year from now, divide 1 by the interest rate plus 1. For example, if the interest rate is 5 percent, the discount factor is 1 divided by 1.05, or 95 percent.Video of the DayFor cash flows further in the future, the formula is 1/(1+i)^n, where n equals how many years in the future you'll receive the cash flow. In this scenario, the discount rate for a cash flow two years away is 1 divided by 1.05 squared, or 91 percent.Applying Discount RatesTo apply a discount rate, multiply the factor by the future value of the expected cash flow. For example, if you expect to receive $4,000 in one year and the discount rate is 95 percent, the present value of the cash flow is $3,800. Keep in mind that cash flows at different time intervals all have different discount rates. For example, if you expect an additional $4,000 in two years, that cash flow should be multiplied by the two-year discount rate — in this scenario, 91 percent — for a present value of $3,640.Finding Net Present ValueEventually, the discount rates you calculate allow you to determine the net present value of an investment opportunity. To calculate the net present value of an investment, sum the present value of all positive cash flows and subtract the present value of all negative cash flows. For example, say that the investment you're considering requires an initial cash outlay of $7,000 and will provide you two cash flows of $4,000 at the end of year one and the end of year two. At a 5 percent interest rate, the present value of all cash flows is $3,800 plus $3,640 minus $7,000. The net present value of this investment would be $440.By: Fiona TappBy: Eric BankPARTNER CONTENTBy: Jaime GuilletBy: Madison GarciaBy: Chirantan BasuGet Weekly Savings& Finance Tips. Get Weekly Savings& Finance Tips.Money Made Easier.Please enter a valid email. 上传我的文档
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