NPV Calculator
Calculate Net Present Value from initial investment, discount rate, and projected cash flows.
Quick Presets
Enter as positive — treated as Year 0 outflow
Annual Cash Flows
Net Present Value (NPV)
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at selected discount rate
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Profitability Index
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Total Undiscounted CFs
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Total Discounted CFs
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Decision
Discounted Cash Flow Table
| Year | Cash Flow | Discount Factor | Present Value | Cumulative PV |
|---|
Cash Flows: Undiscounted vs Discounted
per year comparisonCalculation Details
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How to use this calculator
The NPV calculator works through an investment scenario in a few steps.
Initial Investment is the upfront cost you’re committing today: equipment purchase price, software development cost, construction cost, whatever leaves your account on Day 1. Enter it as a positive number. The calculator treats it as a cash outflow internally.
Discount Rate (%) is the rate you use to convert future cash flows into today’s dollars. This is typically your cost of capital: what you’d earn if you put the money in your next-best alternative. A rate of 8-12% is common for corporate capital projects; early-stage startups often use 20-30% to reflect higher risk. If you’re evaluating a personal investment, use the rate you’d otherwise earn.
Number of Periods sets how many annual cash flow rows appear (1 to 10). Each row represents one year.
Annual Cash Flows are the net cash flows each year. Positive means money coming in (revenue, cost savings), negative means money going out (ongoing costs, additional investment). You can model scenarios with losses in early years and profits later.
Terminal Value (optional) is a lump sum added to the final year’s cash flow. Use it when the investment has residual value at the end of your projection window: a machine you can sell for scrap, a building with remaining market value, or a business’s ongoing value beyond the forecast horizon.
The calculator outputs NPV, the Profitability Index, an Accept/Reject signal (positive NPV = accept), and a full discounted cash flow table showing how each year’s cash flow shrinks when converted to present value.
Example: Equipment purchase decision
A bakery is considering a $50,000 automated dough mixer. It’s expected to generate $15,000/year in cost savings for 5 years, after which it has a $5,000 salvage value. Their cost of capital is 10%.
- Initial Investment: $50,000
- Discount Rate: 10%
- Periods: 5
- Cash Flows: $15,000 / year
- Terminal Value: $5,000
The calculator will return the NPV, the DCF table for each year, and tell you whether the project clears the 10% hurdle.
If you’re evaluating a cost-saving project (replacing an expensive process with a cheaper one), the annual cash flows are the annual savings, not revenue. The investment is still the upfront cost. This framing works identically in the calculator.
What NPV actually is
Net Present Value is the sum of all future cash flows from a project, each discounted back to today’s dollars, minus the upfront investment. A positive NPV means the project creates value above and beyond your required return. A negative NPV means you’d be better off investing the money at your discount rate instead.
NPV answers one question: if you commit capital today and receive cash flows over time, does the investment return more than your cost of that capital? It translates every future dollar into a "today dollar" equivalent so you can compare them on equal footing. NPV is the single best-understood metric for deciding whether a capital investment is worth making.
The core insight is time value of money. A dollar received a year from now is worth less than a dollar today, for two reasons: you can earn a return on the dollar you have now, and there’s always some uncertainty about whether the future dollar actually arrives. The discount rate captures both.
The formula and the calculation
Where C₀ is the initial investment, CFₜ is the cash flow in year t, r is the discount rate, and n is the number of years.
Let’s work through the bakery example completely.
Initial investment: $50,000. Discount rate: 10%. Five years of $15,000 savings. Terminal value: $5,000 in year 5.
| Year | Cash Flow | Discount Factor | Present Value |
|---|---|---|---|
| 1 | $15,000 | 1/(1.10)¹ = 0.909 | $13,636 |
| 2 | $15,000 | 1/(1.10)² = 0.826 | $12,397 |
| 3 | $15,000 | 1/(1.10)³ = 0.751 | $11,270 |
| 4 | $15,000 | 1/(1.10)⁴ = 0.683 | $10,245 |
| 5 | $20,000 | 1/(1.10)⁵ = 0.621 | $12,418 |
Sum of Present Values: $13,636 + $12,397 + $11,270 + $10,245 + $12,418 = $59,966
NPV = $59,966 - $50,000 = +$9,966
The NPV is positive. The bakery should buy the mixer. Not only does it pay back the $50,000, it creates an additional $9,966 of value in today’s dollars, above and beyond the 10% return they could earn elsewhere.
Profitability Index = ($59,966 + $50,000) / $50,000 = 1.20. Every dollar invested returns $1.20 in present value terms.
NPV vs IRR: when they agree and when they don’t
NPV and IRR are the two dominant tools for evaluating capital projects. They agree most of the time, but they disagree in exactly the situations where it matters most.
Internal Rate of Return (IRR) is the discount rate at which a project’s NPV equals zero. It’s the project’s implied return on investment. For the bakery mixer: you’d solve for the rate r that makes the discounted cash flows sum to $50,000. That rate turns out to be around 15.2%, which is above the 10% hurdle, so IRR says accept.
Both NPV and IRR agree on simple, conventional projects (one upfront investment, positive cash flows after). The disagreements happen in two scenarios.
Mutually exclusive projects: NPV wins
You can only afford one project. Project A costs $10,000 and returns $15,000 in year 1 (IRR: 50%, NPV at 10%: $3,636). Project B costs $100,000 and returns $130,000 in year 1 (IRR: 30%, NPV at 10%: $18,182).
IRR says A is better (50% > 30%). NPV says B is better ($18,182 > $3,636). If you can only choose one, B creates far more wealth. IRR got the ranking wrong because it ignores the scale of investment.
Unconventional cash flows: IRR breaks down
If a project has negative cash flows after positive ones (e.g., a mine that needs $50M cleanup in year 10), there can be multiple IRRs or no real IRR at all. NPV handles this cleanly because you’re just summing discounted values.
For ranking competing projects or projects with mixed cash flow patterns, use NPV. IRR is better for communication: “this project returns 18% annually” is intuitive in a boardroom in a way that “$47,000 of present value” isn’t. Use both. If they agree, you’re done. If they disagree, trust NPV.
Choosing a discount rate: typical hurdle rates by sector
| Sector / Context | Typical Discount Rate |
|---|---|
| Risk-free (government bonds) | 4% – 5% |
| Investment-grade corporate debt | 5% – 7% |
| Large-cap public company (WACC) | 7% – 10% |
| Mid-market industrial company | 10% – 15% |
| Real estate development | 10% – 15% |
| Private equity acquisition | 15% – 25% |
| Early-stage startup | 25% – 50% |
| Venture capital | 30% – 60% |
| Personal finance (opportunity cost) | 6% – 8% |
The rate you use fundamentally changes the answer. The same project with $100,000 in present value at a 5% discount rate might only show $65,000 at a 15% rate. This is why companies with high cost of capital (startups, highly leveraged businesses) reject projects that large, stable companies would accept. The math reflects different opportunity costs.
A common shortcut for businesses: use your WACC (weighted average cost of capital) as the base rate, then add a risk premium for projects that are riskier than your average. A 10% WACC company might use 12-13% for an expansion into a new market and 8-9% for a straightforward cost-reduction project.
Real-world examples
Software: build vs buy decision
A 50-person company is deciding whether to build an internal project management tool or subscribe to an off-the-shelf SaaS platform. Building costs $120,000 upfront (development). The SaaS costs $3,000/month ($36,000/year). The built tool would cost $8,000/year to maintain. Discount rate: 12%. Projection: 5 years.
Build option:
- Year 0 outflow: $120,000
- Annual net cash flow (savings vs SaaS): $36,000 - $8,000 = $28,000/year
NPV of Build at 12%:
- PV of Year 1-5 cash flows: $28,000 × [1 - (1.12)⁻⁵] / 0.12 = $28,000 × 3.605 = $100,929
- NPV = $100,929 - $120,000 = -$19,071
The build option has a negative NPV at 12% over 5 years. The SaaS subscription creates more value.
What if the tool lasts 8 years with no extra cost? PV factor at 12% for 8 years = 4.968.
- PV of Year 1-8 cash flows: $28,000 × 4.968 = $139,097
- NPV = $139,097 - $120,000 = +$19,097
Over 8 years, build wins. The decision hinges on how long you’ll actually use it.
Equipment: replacing a delivery van
A florist is replacing a delivery van. The new van costs $45,000. It’ll generate $12,000/year in delivery revenue net of fuel and maintenance, for 6 years. After that, it’ll be worth about $4,000 (residual value). Cost of capital: 9%.
| Year | Cash Flow | PV Factor (9%) | Present Value |
|---|---|---|---|
| 1 | $12,000 | 0.917 | $11,009 |
| 2 | $12,000 | 0.842 | $10,092 |
| 3 | $12,000 | 0.772 | $9,259 |
| 4 | $12,000 | 0.708 | $8,495 |
| 5 | $12,000 | 0.650 | $7,798 |
| 6 | $16,000 | 0.596 | $9,536 |
Sum of PVs: $56,189 NPV = $56,189 - $45,000 = +$11,189
The van earns well above the 9% hurdle. Profitability Index = $56,189 / $45,000 = 1.25. Buy the van.
Common mistakes
Using the wrong discount rate. This is the biggest lever in the calculation. If you’re evaluating a moderately risky expansion and plug in 5% (government bond rate) instead of 12% (your actual cost of capital), you’ll accept projects you shouldn’t. Match the rate to the riskiness of the specific project, not just your company’s average.
Mixing nominal and real cash flows. Nominal cash flows include inflation; real cash flows don’t. If your cash flow projections are in today’s dollars (no inflation baked in), use a real discount rate. If they reflect actual future dollar amounts with inflation, use a nominal rate. Mixing the two inflates NPV artificially. Most financial projections are nominal, so most discount rates should be nominal too.
Forgetting terminal value. A 5-year model that ends abruptly undervalues projects whose assets keep generating returns. A piece of manufacturing equipment doesn’t become worthless in year 5. A business doesn’t stop existing. Either extend your projection horizon or add a terminal value. The omission can flip a borderline-positive NPV to negative.
Treating NPV as precise. Your cash flow estimates carry uncertainty. Year 1 might be fairly reliable; year 7 is speculative. A helpful practice: run three NPV scenarios (optimistic, base, pessimistic) and see if the decision flips. If the project is NPV-positive even under pessimistic assumptions, it’s a strong buy. If it only works in the optimistic case, be cautious.
Ignoring scale when comparing projects. An NPV of $50,000 on a $500,000 investment is a 10% return in present value terms. An NPV of $50,000 on a $50,000 investment is extraordinary. The Profitability Index (PI) adjusts for this: PI = (NPV + Investment) / Investment. Use PI to rank competing projects when capital is limited.
The bottom line
NPV is the most theoretically sound method for evaluating capital investments. It accounts for the time value of money, it handles complex cash flow patterns, and it gives you an absolute dollar figure: how much value this investment creates or destroys in today’s terms. A positive NPV is a clear signal to proceed; a negative NPV means the investment doesn’t meet your required return. Use it alongside IRR for communication, and always run a sensitivity check on your discount rate assumption. The number that changes your decision most often isn’t the cash flow forecast. It’s the rate you use to discount it.
Frequently Asked Questions
What is Net Present Value (NPV)?
NPV is the difference between the present value of future cash inflows and the initial investment. A positive NPV means the investment earns more than the discount rate and creates value; a negative NPV means it destroys value. Formula: NPV = Σ [CF_t / (1+r)^t] − Initial Investment.
What is the NPV formula?
NPV = −Initial Investment + CF₁/(1+r)¹ + CF₂/(1+r)² + ... + CF_n/(1+r)^n, where CF_t is the cash flow in year t, r is the discount rate, and n is the number of periods. Each future cash flow is divided by (1+r)^t to discount it to today's value.
What does a positive NPV mean?
A positive NPV means the investment generates more value than the cost of capital. Accept the project. A negative NPV means it earns less than your required return — reject it. An NPV of zero means you earn exactly the discount rate.
What is the Profitability Index (PI)?
PI = (NPV + Initial Investment) / Initial Investment = Present Value of Future CFs / Initial Investment. A PI > 1 means accept; PI < 1 means reject. PI is useful for ranking projects when capital is limited.
What discount rate should I use for NPV?
Use your WACC for corporate projects, or your personal required return for personal investments. Higher-risk projects deserve higher discount rates (15–25%); lower-risk projects use lower rates (5–10%).
What is the difference between NPV and IRR?
NPV gives the absolute value added in today's dollars at a given discount rate. IRR gives the rate at which NPV = 0. NPV is better for comparing projects of different scales. Use both together for a complete picture.
What is the difference between NPV and DCF?
DCF is the process of discounting future cash flows to present value. NPV is the result of that process — DCF minus the initial investment. All NPV calculations use DCF, but not all DCF analyses calculate NPV.
Can NPV be negative?
Yes. A negative NPV means the present value of future cash flows is less than the initial investment at your discount rate. The project may still generate positive undiscounted returns but not enough to meet your required return.
How do I calculate NPV in Excel?
Use =−InitialInvestment + NPV(rate, CF1:CFn). Excel's NPV() assumes the first cash flow occurs one period from now, so add the Year 0 outflow separately as a negative number.
What are the limitations of NPV?
NPV is sensitive to the discount rate and cash flow forecasts. Small assumption changes can swing results dramatically. It also ignores real options and flexibility. Always supplement NPV with scenario analysis and sensitivity testing.
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