This **net present value calculator** estimates the NPV of an investment by the discounted sum of all cash flows while considering the initial cost, discount rate and ins and outs. There is in depth information about this indicator and its equation below the application.

## How does this net present value calculator work?

This tool can help when analyzing whether an investment is profitable or not by assessing its Net Present Value which is a critical financial profitability indicator every investor looks at before any move.

The algorithm behind this *net present value calculator* uses the NPV formula which is explained here in both short and long form:

- NPV equation long form:

- NPV formula short form:

Where:

**C0** is the initial investment.

**C1 … Ct** are the projected cash flows within the term specified. They can either positive (ins) cash flows or negative (outs) cash flows.

**r** is the discount rate expressed as a percentage.

**t** is the term specified.

Apart from the NPV value the financial calculator estimates as well the present value of the assumed cash flows which is determined by adding the NPV value to the initial cost of the investment.

Please note that the tool allows adding as many cash flows as needed by simply clicking the "ADD 1 YESR CASH F" button.

## How to calculate net present value?

Let's assume a business with the following financial scenario:

Discount rate 5% |
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Project term 5 years |
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Year |
Cash Flow |
Present Value |
Cumulative |

Initial cost |
-$10,000.00 |
-$10,000.00 |
-$10,000.00 |

1 |
2000 |
1904.761905 |
-$8,095.24 |

2 |
1500 |
1360.544218 |
-$6,734.69 |

3 |
2500 |
2159.593996 |
-$4,575.10 |

4 |
3000 |
2468.107424 |
-$2,106.99 |

5 |
3500 |
2742.341583 |
$635.35 |

NPV |
$635.35 |
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PV of cash flow |
$10,635.35 |

## Why is NPV so important?

For investor all around the world this is a synthetic indicator that:

- … is easy to talk about and simulate through a what if scenario;
- … allows anybody compare between two or more opportunities, investment plans or projects;
- … together with an analysis of the risk profile of the investment can help the investor decide whether to finance the business or not.

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