1. What is NPV with Salvage Value?

Net Present Value (NPV) with salvage value is a financial metric that calculates the present value of all future cash flows from an investment, including the terminal (salvage) value, minus the initial investment cost. It accounts for the time value of money.

2. How Does the Calculator Work?

The calculator uses the NPV formula with salvage value:

Where:

• \( Initial \) — Initial investment cost
• \( CF \) — Annual cash flow
• \( r \) — Discount rate (as decimal)
• \( t \) — Time period (year)
• \( Salvage \) — Salvage value at end of project
• \( n \) — Total number of periods

Explanation: The formula discounts all future cash flows and the salvage value back to present value terms, then subtracts the initial investment.

3. Importance of NPV Calculation

Details: NPV is the most reliable method for evaluating capital projects. A positive NPV indicates a profitable investment after accounting for the time value of money and all costs.

4. Using the Calculator

Tips: Enter all values in USD. The discount rate should reflect your cost of capital or required rate of return. The salvage value represents equipment/residual value at project end.

5. Frequently Asked Questions (FAQ)

Q1: What does a positive NPV mean?
A: A positive NPV indicates the investment is expected to generate value above the required rate of return.

Q2: How does salvage value affect NPV?
A: Higher salvage values increase NPV as they represent additional cash inflow at project termination.

Q3: What discount rate should I use?
A: Typically your company's weighted average cost of capital (WACC) or a hurdle rate that reflects investment risk.

Q4: Can NPV be negative?
A: Yes, negative NPV suggests the investment would destroy value based on the inputs.

Q5: How does this differ from regular NPV?
A: This version explicitly accounts for terminal/salvage value, which is important for capital-intensive projects.