Whether you need to assess the value of different project alternatives, investment options or assets, you will likely want to use an NPV calculator.
Fill in the discount rate, the investment, your projected cash flows and the estimated residual value (if any). The calculator will discount the net cash flows based on your parameters and provide you with the Net Present Value of your series of cash flows.
Introduction to the NPV Calculator
The net present value method is one of the most common types of quantitative cost-benefit analysis. Discounting cash flows and computing the NPV is an ideal approach to compare the cash flow series of different investment or project alternatives.
For instance, if you need to compare several project options with different initial investment amounts and benefits that materialize at different points in time, the NPV will provide you with certain comparability of their quantitative assessment. The Net Present Value is also mentioned as one of the potential project success measures in PMI’s Project Management Body of Knowledge (source: PMBOK, 6th edition, part 1, ch. 126.96.36.199, p. 34).
However, the NPV calculation requires a number of assumptions and the method itself comes with certain advantages and disadvantages. Therefore, make sure that you interpret and communicate the calculated NPV together with those assumptions and potential weaknesses of the calculation.
For the calculation of the Net Present Value, the following parameters are required.
Set a discount or interest rate which will be used to discount the projected net cash flows. Typical examples are capital cost or target return rates of companies (often used for assessment of projects) or market interest rates (plus a risk premium).
Fill in the amount of the initial investment as a negative cash flow (i.e. an outflow). This number can reflect any investment of resources, e.g. cash outflows as well as cost and expenses or other consumptions of resources.
Projected Net Cash Flows
Once you have chosen the number of years (max. 10), you are asked to fill in the projected net cash flows for each period. Refer to your business forecast and calculate the net cash flow by summing the projected inflows (positive) and outflows (negative) for each year. The projected net cash flow can be negative or positive.
If you expect your asset to have a remaining market value, yield a perpetuity or cause disposal cost (negative), compute the residual value and add it here. The residual value will be discounted as an in- or outflow at the end of the last year of your projection.
Net Present Value (NPV) Calculator
Fill in the number of years, discount rate, initial investment, projected net cash flows and estimated residual value. The calculator computes the net present value of your series of cash flows automatically.
You have successfully calculated the net present value. Make sure you are familiar with all the assumptions and pros and cons of the NPV method. There are also other approaches to cost-benefit analyses that you might want to consider as well.
If you are preparing for your PMP certification exam, you can use this calculator to train your NPV calculation skills. Just assume some input parameters yourself, calculate the NPV using pen, paper and a pocket calculator and compare your results with this calculator.
We hope you like our NPV calculator. If you have feedback for us or suggestions for new or enhanced features, let us know!