It is helpful if you understand the time value of money concept in order to fully understand this NPV calculator. It simply means that a dollar today is worth more than a dollar at any time in the future. How much less would a future cash flow be when brought back to the present? Well that depends on the discount rate. The reason for this is clear.
A dollar today can be invested for a return or used to payoff debt to reduce interest payments. A present value can be calculated for every cash flow that is projected to occur at a future date. If you net them all together you get the net present value.
This NPV calculator will calculate net present value
for a series of cash flows. Net present value is what a series of cash flows in the future would be worth today
as calculated using a discount rate that represents your minimum attractive rate of return. You might want to know the
net present value of an income property (real estate, oil well, etc.), for example. The result would give you an estimate
of the price at which the property could be bought or sold for (based on your minimum expected return - the discount rate).
You will see two series of cash flows. Each series of cash flows support the net present value results at the bottom. To obtain a NPV for your cash flows, you need to supply the actual cash flows from each project. You will also need to supply the discount rate. Be sure to clear out the numbers to zero for the years not needed. The year column can be changed by just changing the first year. Play close attention to the numbers that you put into your analysis. You don't want the expression "Garbage in, garbage out." to apply to an analysis that you are using to make an important business decision.
Use the net present value as a comparison number between projects. If cash flows are generating a present value higher than the investment, then the highest net present value wins. If you are generating present values of costs with little or no positive cash flow, then you want to chose the lowest present value. See Calculate NPV for a more in depth discussion.
Listed below are a few possible applications that you might use this business software for:
Once you have used the NPV calculator to calculate net present value for your projects, you can make a rational decision about which project is most economical for your situation.