The Net Present Value (NPV) is a frequently used and critical measure of investment performance. We’ve written about the NPV in depth, but to further clarify these concepts we’ve created a simple to use NPV calculator. This NPV calculator is based on Excel and makes it easy to quickly calculate NPV for any set of cash flows.
How to Use The NPV Calculator
Here is how you can use this NPV calculator, step by step.
- Download the NPV calculator using the form above.
- Adjust the number of periods you want in your holding period. Our calculator can handle any number of periods you need.
- Input your cash flows.
- Enter your require discount rate.
- View the calculated NPV
As you can see, we’ve made it simple to use our NPV calculator.
NPV Calculator Example #1
Let’s walk through a simple example using this NPV calculator. Suppose we have the following cash flows we’ve estimated for a potential commercial real estate investment property:
Initial Investment: $1,000,000
Annual Cash Flows for 5 years: $100,000, $103,000, $105,000, $110,000, $112,000
Net Sales Proceeds: $1,100,000
In order to determine if this is an investment we want to take a closer look at, we can quickly calculate the net present value. To do this we simply need to input the above cash cash flows into our NPV calculator, enter a discount rate, and then view our NPV:
As you can see, the projected cash flows result in an NPV of $3,762 assuming our discount rate is 12%. What does this mean? The net present value simply measures the present value of all future cash flows minus the present cost to acquire those cash flows. Our present value is also calculated above at a 12% discount rate and this results in a PV of $1,003,762. This is what all of these future cash flows are worth to us today at a 12% discount rate. Now we can simply subtract our initial cost of $1,000,000 to get our net present value of $3,762. The NPV formula in Excel simply completes this process in one single step. As you can see, we also provide the internal rate of return (IRR) in this calculator, as well as a visual breakout of the cash flows in each period of the holding period.
NPV Calculator Example #2
Now suppose we have more than 5 cash flows. To change the holding period all you need to do is change the optional “# of Periods” input. Then the cash flow table and visual chart will automatically update for you. As shown below, we’ve updated our cash flow projection from the example above to 10 years instead of 5. Now we instantly have a new cash flow table as well as new calculations.
Again, we can see that the NPV calculated above is $-20,213. This means that in order to achieve our required return of 12%, we need to pay $20,2013 less than the initial investment of $1,00,000. In other words, if we pay $979,787 for this set of cash flows instead of $1,000,000, then we will achieve our requires rate of return of 12%. For more on the meaning of NPV, check out our article on the intuition behind IRR and NPV.