The NPV profile shows a project’s NPV graphed as a function of various discount rates. Typically, the NPV is graphed vertically (on the y-axis) and the discount rates are graphed horizontally (on the x-axis). The NPV profile for the Gerhardt capital budgeting project is shown in below example

NPV Profile For example, we have calculated several NPVs for different discount rates. At 10 percent the NPV is €13.136 million; at 20 percent the NPV is –€0.543 million; and at 19.52 percent (the IRR), the NPV is zero. What is the NPV if the discount rate is 0 percent? The NPV discounted at 0 percent is €34 million, which is simply the sum of all of the undiscounted cash flows. Table below shows the NPV profile for the Gerhardt example for discount rates between 0 percent and 30 percent.

Discount Rate NPV $Millions
0 $34.00
5% $22.41
10% $13.14
15% $5.62
20% ($0.54)
25% ($5.66)
30% ($9.95)

 NPV Profile

Three interesting points on this NPV profile are where the profile goes through the vertical axis (the NPV when the discount rate is zero), where the profile goes through the horizontal axis (where the discount rate is the IRR), and the NPV for the required rate of return (NPV is €13.136 million when the discount rate is the 10 percent required rate of return).

The NPV profile in Figure 1 is very well-behaved. The NPV declines at a decreasing rate as the discount rate increases. The profile is convex from the origin (convex from below). You will shortly see some examples in which the NPV profile is more complicated.

NPI Profile

Microsoft Excel 2010
Family Budget Planner Spreadsheet
NPI Profile
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