What is NPV?
Net present value (NPV), also known as net worth (NPW), refers to the net value of an anticipated income stream at the moment in relation to its potential value in the future. Therefore, it is discounted at specific rates. It simply subtracts the current cash outflows, including the initial cost, from the current cash flows over time. The rate used to discount the net present value is the time value of money. The sum is, according to textbooks, the net value. The difference (S) of the future cash flows expected (positive or negative) is less the initial investment.
Another way to understand what "present value" means is to imagine a situation in which a business investment of $500,000 is expected to bring a cash flow of $50,000 within one year. Return on capital of 10% with the annual cost of capital of $50,000 is 11%. This would mean that the income stream has a present negative value (-$4,504.50). It is unlikely that the return on investment will justify the investment. But, if capital costs can be reduced by 5%, the present net value of the same cash stream would be 23,810 dollars. This indicates that capital is being used more efficiently, and it would be worth the investment.
Disclaimer! This simple online NPV calculator is a good start in estimating the Net present value for any investment. However, it is not the end of the process. When making financial decisions or long-term agreements such as bank deposits, you should consult a qualified professional. The calculator's information should be used carefully and at your own risk.
NPV Calculator English
Published: Thu Aug 04 2022
In category Mathematical calculators
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