Program to calculate NPV

What Is Net Present Value (NPV)?

Net present value, or NPV, is used to calculate the current total value of a future stream of payments.
If the NPV of a project or investment is positive, it means that the discounted present value of all future cash flows related to that project or investment will be positive, and therefore attractive.
To calculate NPV, you need to estimate future cash flows for each period and determine the correct discount rate.

Net Present Value (NPV) Formula

where:

Rt = Net cash inflow/outflows during a single period

ti = Discount rate/return that could be earned in alternative investments

t = Number of timer periods

Calculating NPV with Python

let us consider project (X) with following specifications:

life time = 15 years

initail investments = 2000000 $

final project value = 1000000 $

project_cash_flow = [ - 2000000, 0 , 0 , 250000, 250000, 500000, 500000, 750000, 750000, 500000, 500000, 500000, 500000, 500000, 1000000]

discount_rate = [0.05, 0.055, 0.06, 0.065, 0.07, 0.075, 0.08, 0.085, 0.09, 0.095, 0.1, 0.105, 0.11, 0.115, 0.12, 0.125, 0.13, 0.135, 0.14, 0.145, 0.15]

we decide to perform a Net Present Value (NPV) analysis to determine the profitability of the project

Importing the python packages

import matplotlib.pyplot as plt
import matplotlib.pyplot as plt

Input Data

project_cash_flow= [-2000000, 0, 0, 250000, 250000, 500000, 500000, 750000, 750000, 500000, 500000, 500000, 500000, 500000, 1000000]

discount_rate = [0.05, 0.055, 0.06, 0.065, 0.07, 0.075, 0.08, 0.085, 0.09, 0.095, 0.1, 0.105, 0.11, 0.115, 0.12, 0.125, 0.13, 0.135, 0.14, 0.145, 0.15]

Function to calculate NPV

def calculate_npv(rate, cash_flow):
npv = 0
for t in range(len(cash_flow)):
npv += cash_flow[t]/(1+rate)**t
return npv

npvs_a = list()
for rate in discount_rate:
npv_a = calculate_npv(rate,project_a)
npvs_a.append(npv_a)

Graphical Representation

plt.plot(discount_rate,npvs_a, linewidth = 3.0, color = "green", label = "Project X")
plt.axhline(y=0, linewidth = 0.5, color = "black")
plt.title('NPV Profile: Project X')
plt.xlabel('Discount Rate')
plt.ylabel('Net Present Value')
plt.legend()
plt.show()

Output Graph