Cash Flow

  

Solar Net Present Value Calculator

You can use this solar net present value calculator to estimate your return on investment - in today's dollars - on all future cash flows from a commercial solar project.

Net present value (NPV) is a method of calculating your return on an investment (ROI) that is more realistic than simpler calculations, such as a straight-line "simple payback" method. This is because NPV considers three important investment factors: 1) the time value of money, 2) your required rate of return and 3) the magic of compounding.

1) The Time Value of Money: Money today is more valuable than money in the future. This is because you can use money to make more money, such as through collecting interest from a bank, buying dividend stocks or investing in a business. For instance, if you could receive a 10% interest rate from a bank, your investment of $1,000 would provide you with $100 in income after one year. In other words, your $1,000 today becomes $1,100 one year from now. This is the time value of money.

Stated in reverse, or "present value" terms, $1,100 one year from now has a present value of $1,000. In this case, the interest rate is referred to as a discount rate because cash flows that are received in the future must be reduced - or discounted - to account for you having to wait to receive them.

2) Your Required Rate of Return: If you can get 10% interest from a bank, which is considered relatively low risk, you would obviously require a higher rate of return on your money to take on greater risk.

Your required rate of return is whatever you are comfortable with - or whatever rate of return your investors require - in exchange for the risk.

3) The Magic of Compounding: Einstein supposedly said that compounding was the most powerful force in the universe. Whether he said it or not, the magic of compounding should not be ignored. Compounding allows your money to build on itself and make more money each year than it did in the year before... Compounding money grows with no effort on your behalf. A net present value calculation can be thought of as compounding in reverse... You can use the solar net present value calculator to more realistically compare investment opportunities - and decide which investments provide the best returns.