In compounding, you take a present amount (principal) and compound the interest earnings into the future. Think of discounting as the opposite of compounding. On the other hand, if the net present value turns out to be a negative number, then the investment is deemed to be undesirable.įurthermore, net present value analysis can also be used to determine which of two or more alternative desirable investments is the most desirable. If the net present value of a prospective investment is a positive number, the investment is deemed to be desirable. This expected rate of return is known as the Discount Rate, or Cost of Capital. Specifically, net present value discounts all expected future cash flows to the present by an expected or minimum rate of return. 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). This will display the present value of the discounted cash flows, along with a year-by-year chart showing the outflow, inflow, net cash flow, and discounted cash flow for each cash flow year. Once you are satisfied with your cash flow entries, click the 'Calculate Net Present Value' button. Also, the calculator will interpret the last cash flow entered as the end of the report, regardless of how many years are included in the form. You can skip over any years where no cash flows occurred. Step #5:Įnter the starting cash outflow (investment) on the first line of the form and then enter all subsequent outflows and inflows in the years you expect them to occur. This will generate a year-by-year entry form for entering all applicable cash outflows and inflows. Step #4:Ĭlick the 'Create Entry Form' button. Note that if you entered a 4-digit starting year, then you can either enter a number of years or the 4-digit ending year. Step #3:Įnter the number of years you want to include in your discounted cash flows.

Otherwise, if you want the labels to simply be year 1, 2, 3, etc., you can leave the starting year field blank. If you want the entry form to include labels indicating specific years, enter the 4-digit starting year. Step #1:Įnter the discount rate you want the calculator to use for discounting cash flows. (only digits 0-9 and decimal points are allowed).Ĭlick the Terms tab above for a more detailed description of each entry. IMPORTANT: Numeric entry fields must not contain dollar signs, percent signs, commas, spaces, etc.

Npv calculator online