NPV Calculator
Calculate Net Present Value (NPV) of an investment with an initial cost and up to 5 years of projected cash flows.
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How to use this calculator
Each future cash flow is discounted back to today's value using the discount rate. Sum all discounted cash flows and subtract the initial investment.
- 1
Enter the initial investment amount (a cost, so it is negative in theory).
- 2
Enter the discount rate — typically your cost of capital or WACC.
- 3
Enter projected annual cash flows for years 1–5.
- 4
A positive NPV means the investment creates value; negative means it destroys value.
Frequently asked questions
What discount rate should I use?
Use your cost of capital or WACC (Weighted Average Cost of Capital). For personal investments, use your expected return on alternatives (opportunity cost). A common range: 8–15% for corporate projects; 5–10% for lower-risk investments.
What does a positive NPV mean?
A positive NPV means the investment generates more value than its cost in today's dollars, after accounting for the time value of money. It should be accepted. A zero NPV means the investment earns exactly the discount rate — break-even in value terms.
What is the difference between NPV and IRR?
NPV gives an absolute dollar value of how much an investment creates. IRR (Internal Rate of Return) is the discount rate that makes NPV exactly zero — it is the investment's effective return rate. Both are complementary: accept when NPV > 0 and IRR > your hurdle rate.
How does NPV differ from payback period?
Payback period ignores the time value of money and cash flows after the breakeven point. NPV accounts for both, making it a more complete measure. Payback period is simpler and useful for quick liquidity assessment; NPV is the preferred tool for formal investment decisions.
Net Present Value (NPV) explained
Why a dollar today is worth more than a dollar tomorrow
Money received today can be invested to earn returns. $1,000 today at 10% grows to $1,100 in a year. Conversely, $1,100 a year from now is only worth $1,000 in today's dollars at a 10% discount rate. NPV uses this principle to compare investments on equal footing.
NPV in capital budgeting
Companies use NPV to rank competing projects. When capital is limited, projects are ranked by NPV (highest first) until the budget is exhausted. This ensures capital is deployed where it creates the most value.
Limitations of NPV analysis
NPV is only as good as the cash flow forecasts and discount rate. Small changes in either can flip a decision. Sensitivity analysis — running NPV under optimistic, base, and pessimistic scenarios — is essential for high-stakes decisions.
Learn more from an authoritative source:
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Results are estimates for informational purposes only and do not constitute professional financial, medical, legal, or technical advice. Read full disclaimer →