NPV Calculator
Calculate the Net Present Value (NPV) of future cash flows to determine whether an investment is profitable. Use discounted cash flow analysis to compare projects and make informed financial decisions.
Cash Flows per Year
How to Use This Calculator
- Enter the Initial Investment amount (the cost of the project or investment).
- Enter the Discount Rate — this is your required rate of return or cost of capital.
- Select the Number of Years for the investment horizon.
- Enter the expected Cash Flow for each year.
- Click Calculate NPV to see the net present value, profitability verdict, and a year-by-year breakdown.
Formula
Where CFt = cash flow in year t, r = discount rate (decimal), t = year number (1, 2, 3, ...)
NPV discounts future cash flows back to today's value. A positive NPV means the investment generates more value than its cost, adjusted for the time value of money.
Examples
Initial investment: $10,000, Discount rate: 10%, Cash flows: $4,000, $5,000, $6,000 over 3 years. NPV = $2,539. The investment is profitable — it returns $2,539 more than the required 10% return.
Initial investment: $50,000, Discount rate: 8%, Cash flows: $15,000/year for 5 years. NPV = $9,927. The expansion generates nearly $10,000 in value above the 8% hurdle rate.
Initial investment: $20,000, Discount rate: 12%, Cash flows: $6,000, $7,000, $8,000 over 3 years. NPV = −$3,634. Negative NPV means this project does not meet the 12% required return.
Frequently Asked Questions
What does NPV > 0 mean?
A positive NPV means the investment is expected to generate more value than it costs, after accounting for the time value of money. It creates value above your required rate of return. Generally, you should accept projects with positive NPV and reject those with negative NPV.
What discount rate should I use?
The discount rate typically reflects your cost of capital or required rate of return. For corporate projects, use the weighted average cost of capital (WACC). For personal investments, use your opportunity cost — the return you could earn from a similarly risky alternative. Common choices range from 5% to 15% depending on risk.
How is NPV different from IRR?
NPV gives you a dollar amount of value created. IRR (Internal Rate of Return) gives you the percentage return at which NPV equals zero. IRR is useful for comparing projects of different sizes, but NPV is generally preferred for investment decisions because it directly measures value creation.
Can NPV be used for comparing projects?
Yes, but the projects should be of similar scale. If projects differ significantly in size or timing, use the Profitability Index (PI = PV of future cash flows / Initial Investment) alongside NPV for a more complete comparison.