Is the investment worth it? Work out the net present value, payback period, annuity and internal rate of return from the initial outlay, yearly cash flows, residual value and discount rate.
Your numbers
$
$
years
$
%
Result
Net present value
$979
Put a second set of numbers beside this one and see the difference.
Payback period
4
Discounted payback period
5
Annuity per year
$258
Internal rate of return
10.36%
Investing $100,000 and receiving $25,000 a year for 5 years (residual value $10,000) at a 10% discount rate has a net present value of $979. It pays back in 4 years, or 5 years on discounted flows. The annuity is $258 a year and the internal rate of return 10.36%.
The investment is paid at year 0, equal net cash flows arrive at the end of each year and the residual value at the end of the last year. The discount rate is an effective annual rate; tax and inflation are not included.
Download the table of cash flows and present values year by year
The CSV uses commas between fields and a decimal point. In the Excel file the numbers are plain numbers, which Excel shows in your own format.
Net present value in Excel: NPV
The same calculation in one cell, with your numbers. Paste it into Excel:
=NPV(10%,25000,25000,25000,25000,35000)-100000
In Swedish Excel the function is called NETNUVÄRDE. There the arguments are separated by semicolons and decimals written with a comma. Google Sheets uses the English names whatever the language.
The minus sign is not a mistake. Excel tells money coming in from money going out by its sign, so one of the amounts is negative. Flip the signs and the answer flips too.
An investment appraisal compares what an investment costs today with what it returns, with future payments brought back to present value at the discount rate. A positive net present value means the investment earns more than the discount rate demands. The calculator assumes equal net cash flows each year.
Example. An outlay of 1 000 000 returning 250 000 a year for five years, with a residual value of 100 000 and a 10 % discount rate, has a net present value of 9 789: worth doing, but by a small margin. The payback period is 4.0 years and the internal rate of return 10.4 %, just above the discount rate. At an 11 % discount rate the net present value turns negative.
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