What Is NPV Calculator?
NPV calculator is the calculator by which you can get the present value of the future inflows and outflows. For example you can compare the resulting profit from a machine in the next 10 years with the amount which you are spending for acquiring the machinery so that you can know whether to do the activity including machinery.
Net Present Value
Net present value is calculated to know the present value of the future benefits as you can say that a dollar will not amount a dollar in the future. As we all know the value of the money decreases day by day and it is very much helpful if the present value is calculated so that the future decisions can be taken in the efficient manner thus the NPV is used.
It is known that there is always implied rate of interest on the money so that the money will needed to be valued at the rate of the inflation, so that the value of money decreases over a period of time and thus the future value of the money will be reduced (discounted).
There are many uses of the NPV calculator as it is helpful in many ways such as you can take help of the present value calculator in determining the discounted future values or you can plan for the retirement benefit plans in advance and it can also be seen if the retirement benefits can be withdrawn at which time and how to invest and many other aspects.
Formulae To Know The Present Value
PV = FV/ (1+r) n
PV = present value
FV = future cash flow expected to be generated
r= rate of interest which will be equal to inflation rate
n= number of years for which you need to get the discounting formula
Pros And Cons Of The NPV Calculator
There are many advantages and disadvantages of the NPV calculator the advantages of the calculator are as follows:
- The calculator is very much easy to use and you can easily customize the calculator as per your needs so that you can have the accurate measure as per your needs and the interest rates. By this you can also identify the risk and other factors affecting the value of your investments.
- The another advantages are that you can compare the returns of the investments and also you can compare the investment amount of the assets in the different times as well as there will be advantages of the comparison of the investments in the present time.
The disadvantages of the NPV calculator are as follows:
- Where there is the result based on some of the formulas and the future the result can never be 100% accurate, so that you can rely on the results but you cannot have the 100% surety that the objectives will be achieved with the use of this calculator.
- The other big disadvantage of the calculator is that there will be no opportunity cost included in the calculation of the present value so you cannot get the accurate results.
This was FinanceShed’s analysis of Net Present Value Calculator which is useful for you to take financial decisions.