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Net Present Worth (NPW) of a Cash Stream

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The present value of a stream of payments - Net Present Worth (NPW) or Net Present Value (NPV) -

can be calculated with a discounting rate

P = F 0 / (1 + i) 0 + F 1 / (1 + i) 1 + F 2 / (1 + i) 2 + .... + F n / (1 + i) n (1)

where

P = Net Present Worth (or Value)

F = cash flow in the future

i = discounting rate

(1 + i) n is known as the " compound amount factor ".

Example - the Net Present Worth of an Investment Transaction with a variable Cash Flow

The Net Present Worth - NPW - of investing an amount of 1000 today and saving 250, 200, 300, 310 and 290 the next 5 years - and selling the investment for 310 in the last fifth year - at an interest or discount rate of 10% , can be calculated as

P = (-1000)/ (1 + 0.1) 0 + (250) / (1 + 0.1) 1 + (200) / (1 + 0.1) 2 + (300) / (1 + 0.1) 3 + (310) / (1 + 0.1) 4 + (290 + 310) / (1 + 0.1) 5

= 202

Net Present Worth is positive and the investment is profitable.

Example - Investment In Renewable Energy - Discounted Cash Flow

Net Present Worth Calculator - Variable Cash Flow Stream

The calculator below can be used to estimate Net Present Wort - NPW - in an investment project with up to 20 periods and variable cash flows.

  • money out - negative values
  • money in - positive values
PeriodCash FlowCash Flow
(discounted)
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SUM
Discount rate (%)

Net Present Worth Calculator - Investment with Fixed Cash Flow and Growth Rate

The calculator below can be used to calculate the Net Present Worth for a project with a fixed investment value and fixed return cash flows with a growth rate.


Example - Investing in a Solar Power System

An investment of 30000 in a solar power system saves an amount of 1000 on the electricity bill the first year. The electricity price is in the future assumed to rise 10% (growth rate) each year. The alternative use of the money is to invest in a savings account with 3% interest rate (discount rate).

The lifespan of the solar power system is estimated to 20 years (no. of periods).

Using these values in the calculator above gives

P = 12819

IRR = 6.1 %

- and the investment is profitable compared to the savings account.

Using the same values - but for a shorter lifespan of 15 years - gives

P = - 3581

IRR = 1.6 %

- and the investment is not profitable compared to the savings account.

Net Present Value - Spreadsheet

A flexible Net Present Value and Internal Rate Calculator in Excel spreadsheet format is available here !

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Related Topics

Economics

Engineering economics - cash flow diagrams, present value, discount rates, internal rates of return - IRR, income taxes, inflation.

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A bid work flow template - Online with Google Docs.

Cash Flow Diagrams

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Compound Interest Tables

Compound interest tables - interests rates 0.25 - 60%.

Contract Types

Commonly used engineering and construction contracts.

Discrete Compounding Cash Flow Formulas

Discrete payments compounding equations and online calculators .

Interest Formulas

Future value of single cash flow.

Interest Rate

Interest rate is the cost of money.

Internal Rate of Return - IRR

Internal Rate of Return (IRR) - the break-even interest rate.

Investments in Renewable Energy

Calculate investments in renewable energy.

Present Value

The value of money in the future is the Present Value.

Uniformat

The ASTM E1557 UNIFORMAT II Standard.

Value Engineering

Improved value by enhanced function.

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