You can use the following template to calculate the NPV using Numpy:
import numpy as np npv = np.npv(discount rate,[initial investment in negative terms, cash flow for each year separated by comma]) print (npv)
Let’s now review a simple example with the steps to calculate the NPV.
Steps to Calculate the NPV using Numpy
Step 1: Gather your data
To start, you’ll need to gather the data for the NPV calculation.
For example, let’s suppose that you have the following data about a project:
- The initial investment is $1100
- The project is expected to generate:
- $300 in year-1
- $450 in year-2
- $800 in year-3
- The discount rate is 5%
Step 2: Calculate the NPV using Numpy
Next, use the following template to derive the NPV:
import numpy as np npv = np.npv(discount rate,[initial investment in negative terms, cash flow for each year separated by comma]) print (npv)
The is how the full Python code would look like in the context of our example:
import numpy as np npv = np.npv(0.05,[-1100,300,450,800]) print (npv)
Run the code in Python and you’ll get the NPV of 284.947
Since the NPV is positive, you should consider to invest in the project.