Net Present Value (NPV) Calculator
To calculate the net present value by discounting a cash flow with the cost of money, enter the required information in the calculator below and click the calculate button.
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What is net present value?
It is one of the most important concepts in finance. Its short name is NPV. It is used quite frequently, especially when making investment decisions.
How investment decisions are made based on the net present value?
The investment decision can be made by comparing the present value of the future cash flow with the cost of the investment to be made today. If the present value of the future cash flow is more than the cost of the investment to be made today, then it is understood that the relevant investment will be a profitable investment if the expectations are realized. On the contrary, if the investment cost is more than the present value of the future cash flow, it can be easily determined that the relevant investment is a losing investment.
How is the net present value (NPV) calculated?
The net present value method is the reduction of future cash flows to today with a certain discount rate, taking into account the time value of money. Using the formula below for each period's cash flow, the value of each cash flow is reduced to its present value. Then, the total net present value of the cash flow is obtained by adding these reduced values obtained.
Discounted Cash Inflow or Outflow = (Cash Inflow or Outflow) / (1 + Discount Rate)Number of Periods
How is discount rate determined?
While deciding what the periodic interest rate used will be, the most important issue is the opportunity cost of the relevant person or institution. In summary, the firm's cost of capital should be used as the discount rate. Otherwise, making wrong financial decisions may be inevitable.
For what purposes net present value calculator can be used?
Our calculator can be used when making rent-generating real estate investments such as homes or businesses. In addition, the net present value calculation method can be used to determine the real values of stocks in the stock exchange. In short, this method and our NPV calculator can be used in all kinds of investment decisions that generate cash flow.