NPV Calculator - Net Present Value
Enter your initial investment, discount rate, and expected cash flows for each period. The calculator returns the net present value (NPV), internal rate of return (IRR), profitability index, and a full year-by-year present value schedule. Results update instantly as you type.
Formula
Worked example
An investment of $50,000 with a 10% discount rate and cash flows of $15,000, $18,000, $20,000, $22,000, $25,000 over five years: PV1 = 15,000/1.1 = $13,636; PV2 = 18,000/1.21 = $14,876; PV3 = 20,000/1.331 = $15,026; PV4 = 22,000/1.464 = $15,027; PV5 = 25,000/1.611 = $15,519. Total PV = $74,084. NPV = $74,084 - $50,000 = $24,084. PI = 74,084/50,000 = 1.482.
What is Net Present Value?
Net Present Value (NPV) is a core capital-budgeting metric that converts every future cash flow into today's dollars using a discount rate, then subtracts the upfront investment. A positive NPV means the project is expected to generate more in present-value terms than it costs, and it should theoretically be accepted. A negative NPV signals the opposite. Because a dollar received in the future is worth less than a dollar today (due to inflation, opportunity cost, and risk), NPV adjusts for the time value of money in a way that raw profit figures cannot.
How to use this calculator
Enter the initial investment (the upfront cash outlay at time zero), your required discount rate (often the weighted average cost of capital, or WACC, for corporate projects, or the opportunity cost of capital for personal investments), and cash flows for each year the project runs. You can enter up to 10 annual periods. Leave any unused year fields at zero. The calculator instantly returns the NPV, IRR, present value of cash flows, profitability index, total undiscounted cash flow, and a year-by-year schedule showing the discount factor and present value for each period.
NPV vs. IRR: which one should you use?
NPV and IRR answer slightly different questions. NPV tells you the absolute dollar value created (or destroyed) by an investment, expressed in today's dollars. IRR tells you the annualized rate of return the investment earns. When comparing two mutually exclusive projects, NPV is generally the more reliable guide because it accounts for the scale of investment and re-investment assumptions. IRR is useful for a quick go/no-go check against a hurdle rate, and for communicating returns to stakeholders who think in percentage terms. If NPV and IRR point in the same direction (as they usually do for normal cash flow profiles), the decision is straightforward. Conflicts arise mainly when cash flow patterns are non-standard or project scales differ significantly.
The Profitability Index and how to rank projects
When capital is constrained and you must choose among several positive-NPV projects, the Profitability Index (PI) helps rank them. PI = PV of future cash flows / initial investment. A PI above 1.0 means each dollar invested generates more than a dollar in present value. Projects with the highest PI per dollar committed rank first, letting you get the most value out of a limited budget. For example, a $10,000 project with an NPV of $5,000 has a PI of 1.5, while a $100,000 project with an NPV of $30,000 has a PI of 1.3. Under a tight capital constraint you would prefer the first project.
Choosing the right discount rate
The discount rate is the single most sensitive input in an NPV calculation. For a business, the standard choice is the weighted average cost of capital (WACC), which blends the cost of debt and equity weighted by their proportions in the capital structure. For a personal investment or a project funded entirely from equity, the relevant rate is the opportunity cost: the return you could have earned in an alternative investment of similar risk. A higher discount rate makes distant cash flows less valuable and reduces NPV; a lower rate has the opposite effect. Running a sensitivity analysis by stepping the rate up and down by 2-3 percentage points is good practice to see whether the project's viability is robust.
NPV decision rules
| Metric | Value | Interpretation | Decision signal |
|---|---|---|---|
| NPV | Greater than 0 | Project earns more than the discount rate | Accept |
| NPV | Equal to 0 | Project earns exactly the discount rate | Indifferent |
| NPV | Less than 0 | Project earns less than the discount rate | Reject |
| IRR | Greater than hurdle rate | Excess return above required rate | Accept |
| IRR | Less than hurdle rate | Insufficient return | Reject |
| PI | Greater than 1.0 | Each dollar invested returns more than $1 in PV | Accept |
| PI | Less than 1.0 | Each dollar invested returns less than $1 in PV | Reject |
Standard capital-budgeting interpretation of NPV and related metrics.
Frequently asked questions
What does a negative NPV mean?
A negative NPV means that, at the specified discount rate, the present value of future cash flows is less than the initial investment. The project is expected to destroy value in today's dollars. This does not necessarily mean the project loses money in raw cash terms; it means the return is below the discount rate. If the discount rate reflects your true cost of capital or opportunity cost, a negative-NPV project should generally be rejected in favor of alternatives that at least match that rate.
What is the difference between NPV and IRR?
NPV is a dollar amount representing value created or destroyed. IRR is the annualized percentage return embedded in a project's cash flows. A project passes the IRR test when its IRR exceeds the hurdle rate. Both methods usually give the same accept/reject signal for a single project with conventional cash flows (one initial outlay followed by inflows). Conflicts arise when comparing projects of different sizes or when cash flows alternate in sign multiple times, in which case NPV is the more reliable criterion.
How do I choose the discount rate?
For corporate projects, use the weighted average cost of capital (WACC), which blends the after-tax cost of debt and the cost of equity. For personal investments, use the rate you could earn in an alternative investment of similar risk. Some analysts add a risk premium on top of WACC for particularly uncertain projects. The key principle is that the discount rate should reflect the opportunity cost of the capital being deployed, so a higher-risk project warrants a higher rate.
What is the Profitability Index and when is it useful?
The Profitability Index (PI) is the ratio of the present value of future cash flows to the initial investment. A PI above 1.0 means the project creates value; below 1.0 it destroys value. PI is most useful when you have multiple positive-NPV projects competing for a limited capital budget: rank them by PI and fund the highest-PI projects first to maximize total value created per dollar invested.
Does NPV account for the timing of cash flows?
Yes. The discount factor for each period, 1/(1+r)^t, directly reflects when the cash flow occurs. A cash flow received in Year 1 is worth more than the same cash flow received in Year 5 because you have four extra years to reinvest it. This is why projects that front-load their inflows score better on NPV than projects that back-load them, even with identical raw totals.
What is the simple payback period and how is it different from NPV?
The simple payback period is the number of years it takes to recover the initial investment from undiscounted cash flows. It ignores the time value of money entirely, so it underestimates how long recovery really takes in economic terms. NPV is the more rigorous measure because it accounts for the cost of waiting. Payback is still widely used as a quick liquidity check or a rough measure of project risk, with shorter payback periods indicating less exposure to long-range uncertainty.