NPV Calculator
Calculate net present value for any investment — enter uniform or variable cash flows, see NPV, profitability index, discounted payback period, and a full present-value breakdown.
NPV Calculator
Investment Inputs
Upfront cost at time zero (entered as a positive number)
Required rate of return or cost of capital
Calculation Results
Net Present Value (NPV)
+$6,861.80
Positive NPV — investment creates value
Profitability Index (PI)
1.137
PI ≥ 1 — every $1 invested returns value
Initial Investment
$50.00K
PV of Inflows
$56.86K
Total Undiscounted
$75.00K
Payback Period
3.33 yrs
Discounted Payback Period
4.26 yrs
Decision Guide
At a 10.0% discount rate, this investment adds $6,861.80 in present value. The PI of 1.14 means each dollar invested generates $1.14 in present value.
| Period | Cash Flow | Discount Factor | Present Value |
|---|---|---|---|
| Year 0 | -$50,000.00 | 1.0000 | -$50,000.00 |
| Year 1 | $15,000.00 | 0.9091 | $13,636.36 |
| Year 2 | $15,000.00 | 0.8264 | $12,396.69 |
| Year 3 | $15,000.00 | 0.7513 | $11,269.72 |
| Year 4 | $15,000.00 | 0.6830 | $10,245.20 |
| Year 5 | $15,000.00 | 0.6209 | $9,313.82 |
| NPV | +$6,861.80 |
Complete Guide to Net Present Value (NPV)
What is Net Present Value?
Net Present Value (NPV) is the gold standard of investment appraisal. It answers a single question: after accounting for the time value of money, does a project create or destroy wealth? A positive NPV means the investment earns more than the required rate of return; a negative NPV means it falls short.
NPV works by discounting every future cash flow back to today using a chosen discount rate — typically the investor's cost of capital or minimum acceptable return. The sum of those present values, minus the upfront investment, is the NPV. Unlike simpler metrics such as payback period, NPV accounts for every cash flow over the project's life and the opportunity cost of capital.
NPV is closely related to Internal Rate of Return (IRR). While IRR finds the discount rate at which NPV equals zero, NPV tells you the absolute dollar value created at a specific rate. Using both together gives a fuller picture of an investment's attractiveness.
NPV Formula
Net Present Value:
NPV = -C₀ + CF₁/(1+r)¹ + CF₂/(1+r)² + ... + CFₙ/(1+r)ⁿ
NPV = -C₀ + Σ [CFₜ / (1+r)ᵗ] for t = 1 to n
Where: C₀ = initial investment, CFₜ = cash flow in period t, r = discount rate, n = number of periods
Profitability Index:
PI = PV of Inflows / C₀
PI > 1 means positive NPV; useful for ranking mutually exclusive projects
Benefits of NPV Analysis
Time Value of Money
Properly discounts future cash flows, recognising that a dollar today is worth more than a dollar tomorrow
Absolute Value Measure
Shows the exact dollar amount of value created, not just a percentage — making it easy to compare projects of different sizes
Handles Irregular Flows
Works with any pattern of cash flows — growing, shrinking, negative, or irregular — unlike annuity-based shortcuts
Additive Property
NPV of a portfolio equals the sum of individual NPVs, enabling straightforward combination of projects. Compare with our Investment Inflation Calculator
Tips for Accurate NPV Calculations
Use After-Tax Cash Flows: Always discount after-tax, incremental cash flows — not accounting profit. Include depreciation tax shields and working capital changes.
Match Discount Rate to Risk: Use your weighted-average cost of capital (WACC) for average-risk projects. For riskier ventures, add a risk premium. Use the Bond Yield Calculator to benchmark your debt cost.
Sensitivity Test the Rate: Run NPV at several discount rates (e.g. 8%, 10%, 12%) to see how sensitive your decision is. A project that goes negative at a slightly higher rate carries more risk.
Common NPV Mistakes
Using Revenue Instead of Cash Flow
NPV requires actual cash flows, not accounting revenue. Exclude non-cash items like depreciation (except for tax shield effects) and include capital expenditures.
Ignoring the Terminal Value
For long-lived assets, a large portion of NPV comes from a terminal or salvage value. Omitting it can dramatically understate the project's worth.
Wrong Discount Rate
Using a risk-free rate for a risky project inflates NPV. Using a high rate for a safe project rejects good investments. Match the rate to the specific risk of the cash flows being discounted.
Related tools
Browse allIRR Calculator
Calculate the internal rate of return for any investment. Enter uniform or variable cash flows, get IRR, NPV, payback period, and a full present-value breakdown.
OpenReal Estate ROI Calculator
Analyze any rental property investment. Calculate cap rate, cash-on-cash return, NOI, gross and net rental yield, DSCR, break-even rent, and total ROI with appreciation.
OpenCompound Interest Calculator
Calculate compound interest with daily, weekly, monthly or annual compounding. Includes first-30-days daily table, EAR calculation, and additional deposit support.
OpenBond Yield Calculator
Calculate yield to maturity (YTM), current yield, Macaulay & modified duration, and convexity for any coupon bond. Includes total return and price sensitivity analysis.
OpenFrequently Asked Questions
What is Net Present Value (NPV)?
NPV is the sum of all future cash flows discounted back to today's value, minus the initial investment. Formula: NPV = ΣCash Flow_t ÷ (1+r)^t − Initial Cost. Positive NPV = investment creates value at the assumed discount rate; negative NPV = destroys value. It's the gold-standard metric in capital budgeting.
What discount rate should I use?
Use your weighted-average cost of capital (WACC) for corporate projects, or your required rate of return (opportunity cost) for personal investments. Common defaults: 8–12% for equity-funded projects, 5–7% for safer investments, 3% for inflation-adjusted real returns. Higher rates make future cash flows worth less today.
What's the difference between NPV and IRR?
NPV is a dollar amount (the value created at a specific discount rate). IRR is a percentage rate (the rate at which NPV = 0). NPV depends on the discount rate; IRR is rate-independent but assumes you can reinvest at the IRR. Use NPV when comparing projects with the same discount rate; use IRR for rate-independent comparisons.
What is the profitability index?
PI = (NPV + Initial Investment) ÷ Initial Investment, or equivalently the present value of inflows ÷ outflows. PI > 1 = profitable; PI < 1 = unprofitable. Useful when capital is limited — a smaller project with higher PI may produce better returns per dollar invested than a larger project with higher absolute NPV.
What is the discounted payback period?
The number of years before cumulative discounted cash flows equal the initial investment. More accurate than simple payback because it accounts for time value of money. A project with discounted payback of 4 years means you've recouped your investment (in present-value terms) by year 4. Useful for risk-conscious investors who want capital back quickly.
When does NPV mislead?
(1) Wrong discount rate skews everything — too low = accept bad projects; too high = reject good projects. (2) Cash flow estimates are uncertain; sensitivity analysis is essential. (3) Doesn't capture strategic value (real options) or non-financial benefits (market presence, learning). (4) Assumes flat reinvestment rate. Always pair NPV with IRR, payback, and qualitative judgment.