Unlock smarter investment decisions with our Capital Budgeting Calculator. Evaluate projects using key metrics like Net Present Value (NPV), Internal Rate of Return (IRR), Payback Period, and Profitability Index (PI). This essential tool helps businesses and investors assess project viability and maximize returns. Easily compare investment opportunities and make data-driven choices.
Formula:
Key Capital Budgeting Formulas:
- Net Present Value (NPV):
NPV = Σt=1n [CFt / (1 + r)t] - Initial Investment
Where: CFt = Cash Flow in year t, r = Discount Rate, n = Number of Periods, Initial Investment = Initial cash outlay. - Internal Rate of Return (IRR):
IRR is the discount rate 'r' at which NPV = 0.
0 = Σt=1n [CFt / (1 + IRR)t] - Initial Investment
(Calculated iteratively to find 'r') - Payback Period:
The time required for an investment to generate cash flows sufficient to recover its initial cost.
Payback Period = (Full Years Before Recovery) + (Unrecovered Cost at Start of That Year / Cash Flow in That Year) - Profitability Index (PI):
PI = (Present Value of Future Cash Flows) / |Initial Investment|
Where: Present Value of Future Cash Flows = Σt=1n [CFt / (1 + r)t]