1. What is Net Present Value (NPV)?

NPV is the difference between the present value of cash inflows and outflows over a period of time. It's used in capital budgeting to analyze the profitability of an investment or project.

2. How Does the NPV Calculator Work?

The calculator uses the NPV formula:

Where:

• \( CF_t \) — Cash flow at time period t
• \( r \) — Discount rate (as decimal)
• \( t \) — Time period

Explanation: The formula discounts future cash flows to their present value and subtracts the initial investment.

3. Importance of NPV Calculation

Details: NPV is a core metric in financial analysis. A positive NPV indicates a profitable project, while negative NPV suggests the investment would lose money.

4. Using the Calculator

Tips: Enter initial investment as negative value (outflow), discount rate as decimal (e.g., 0.1 for 10%), and cash flows as comma-separated values (e.g., "1000,1500,2000").

5. Frequently Asked Questions (FAQ)

Q1: What discount rate should I use?
A: Typically the company's cost of capital or required rate of return. For personal finance, use your opportunity cost of capital.

Q2: How does NPV differ from IRR?
A: NPV gives absolute dollar value while IRR provides the percentage return rate where NPV equals zero.

Q3: What if cash flows are irregular?
A: This calculator handles irregular cash flows by allowing you to specify each period's cash flow.

Q4: How accurate is this calculator?
A: It provides mathematically precise NPV based on your inputs, but accuracy depends on your cash flow and discount rate estimates.

Q5: Can I calculate IRR with this?
A: No, this calculator only computes NPV. IRR requires iterative calculation methods.