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Npv Calculator

In: Computers and Technology

Submitted By janenn
Words 363
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When cash inflows are even:
|NPV = R × |1 − (1 + i)-n |− Initial Investment |
| |i | |

In the above formula,
R is the net cash inflow expected to be received each period; i is the required rate of return per period; n are the number of periods during which the project is expected to operate and generate cash inflows.
When cash inflows are uneven:
NPV = | |R1 |+ |R2 |+ |R3 |+ ... | |− Initial Investment | | | |(1 + i)1 | |(1 + i)2 | |(1 + i)3 | | | | |Where, i is the target rate of return per period;
R1 is the net cash inflow during the first period;
R2 is the net cash inflow during the second period;
R3 is the net cash inflow during the third period, and so on ... Each cash inflow/outflow is discounted back to its present value (PV). Then they are summed. Therefore NPV is the sum of all terms,

[pic] where

[pic] – the time of the cash flow [pic] – the discount rate (the rate of return that could be earned on an investment in the financial markets with similar risk.); the opportunity cost of capital [pic] – the net cash flow i.e. cash inflow – cash outflow, at time t . For educational purposes, [pic] is commonly placed to the left of the sum to emphasize its role as (minus) the investment. The result of this formula is multiplied with the Annual Net cash in-flows and reduced by Initial Cash outlay the present value but in cases where the cash flows are not equal in amount, then the previous formula will be used to determine the present value of each cash flow separately. Any cash flow within 12 months will not be discounted for NPV purpose, nevertheless the usual initial investments during the first year R0 are summed up a negative cash flow.[2]

Given the (period, cash flow) pairs ([pic], [pic]) where [pic] is the total…...

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