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Net Present Value (NPV) — 1 period Calculator

Profitability of an investment (simple 1-year version).

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Net Present Value

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Overview

The single-period Net Present Value calculates the difference between the current value of an expected future cash inflow and the initial investment cost. By discounting the future amount, it accounts for the time value of money and the opportunity cost of capital over a specific timeframe.

Symbols

Variables

NPV = Net Present Value, = Cash Flow Year 1, r = Discount Rate, = Initial Cost

NPV
Net Present Value
$
Cash Flow Year 1
$
Discount Rate
Variable
Initial Cost
$

Apply it well

When To Use

When to use: This formula is used for short-term financial decisions where a single investment leads to one payout exactly one period later. It is common in bridge loans, short-term inventory flips, or basic capital budgeting scenarios where the discount rate is known.

Why it matters: It provides a clear 'yes or no' signal for investments: a positive result means the project adds value, while a negative result suggests the investment will lose value relative to other opportunities. It is the gold standard for assessing wealth creation in finance.

Avoid these traps

Common Mistakes

  • Ignoring the initial outflow.
  • Wrong discount rate.

One free problem

Practice Problem

A business owner invests 10,000 today to upgrade equipment. They expect the upgrade to generate an additional 11,500 in revenue at the end of next year. If the business requires an 8% return on investment, what is the Net Present Value of this upgrade?

Initial Cost10000 $
Cash Flow Year 111500 $
Discount Rate0.08

Solve for: NPV

Hint: Divide the future cash flow (C1) by 1 plus the discount rate, then subtract the initial cost (C0).

The full worked solution stays in the interactive walkthrough.

References

Sources

  1. Brealey, R. A., Myers, S. C., & Allen, F. (2020). Principles of Corporate Finance (13th ed.). McGraw-Hill Education.
  2. Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2022). Fundamentals of Corporate Finance (13th ed.). McGraw-Hill Education.
  3. Wikipedia: Net present value
  4. Net present value (Wikipedia article). Retrieved from https://en.wikipedia.org/wiki/Net_present_value
  5. Principles of Corporate Finance by Brealey, Myers, and Allen
  6. Fundamentals of Corporate Finance by Ross, Westerfield, and Jordan
  7. Corporate Finance by Berk and DeMarzo
  8. AQA A-Level Business — Financial Decision Making