Calculating Net Present Value-npv Using Python And Numpy

Overview:

  • Net Present Value is a tool for selecting among multiple investment avenues.
  • The rule of Net Present Value is to select an investment with a maximum positive NPV and reject the investments that warrant negative NPV or lesser NPVs.
  • The formula for NPV is

 

NPV Formula

 

CFt - Net cash flow at time t

N - Total number of Periods

r - Discount rate or rate of return

  • Given a series of cash flows the numpy.npv() method returns the Net Present Value of the cash flows.

Example 1: Calculating the NPV for an investment

import numpy as np

 

cashflows       = [-500, 200, 147, 128, 130, 235]; # t0, t1, t2, t3, t4, t5

discountRate    = 0.9; # Nine percent per annum

npv             = np.npv(discountRate, cashflows);  

 

print("Net present value of the investment:%3.2f"%npv);

 

Output:

Net present value of the investment:-315.89

 


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