Net present value is the workhorse of investment decisions. It asks whether the money a project will bring in over time, translated into today’s dollars at your required rate of return, is worth more than what you have to spend up front. A positive answer means the investment adds value; a negative one means your money would do better elsewhere. This calculator gives you the NPV along with the other figures decision-makers usually ask for: IRR, profitability index and payback.
How to use the NPV calculator
- Enter the initial investment — the cash paid out at the start.
- Enter the discount rate: your cost of capital or required return, per year.
- List the future cash flows, one per period, starting with period 1. Use a minus sign for years with net outflows, and shorthand such as
5000x10for repeated amounts. - Choose whether each period is a year, quarter or month. For shorter periods, the annual rate is converted to an equivalent periodic rate.
The table discounts each cash flow and keeps a running total; the chart compares each cash flow with its present value.
NPV formula
C0 is the initial investment, CFt the cash flow at the end of period t and r the discount rate per period. Each term (1 + r)−t is a discount factor: the value today of one dollar received t periods from now.
Worked example
A small manufacturer can buy a machine for $50,000 that is expected to save $14,000, $16,000, $18,000, $15,000 and $12,000 over the next five years. Its required return is 8%.
| Year | Cash flow | Discount factor | Present value |
|---|---|---|---|
| 0 | −$50,000 | 1.00000 | −$50,000.00 |
| 1 | $14,000 | 0.92593 | $12,962.96 |
| 2 | $16,000 | 0.85734 | $13,717.42 |
| 3 | $18,000 | 0.79383 | $14,288.98 |
| 4 | $15,000 | 0.73503 | $11,025.45 |
| 5 | $12,000 | 0.68058 | $8,167.00 |
The present value of the savings is $60,161.81, so NPV = $10,161.81. The profitability index is 1.203, the IRR is 15.56%, the simple payback is 3.13 years and the discounted payback is 3.82 years. At an 8% hurdle, the machine is worth buying.
How the discount rate changes the answer
| Discount rate | NPV | Profitability index |
|---|---|---|
| 0% | $25,000.00 | 1.500 |
| 5% | $15,137.73 | 1.303 |
| 8% | $10,161.81 | 1.203 |
| 10% | $7,170.34 | 1.143 |
| 12% | $4,409.04 | 1.088 |
| 15% | $649.92 | 1.013 |
| 16% | −$510.87 | 0.990 |
At 0% NPV is just the sum of the cash flows. As the rate rises, distant cash flows shrink fastest, and somewhere between 15% and 16% the project stops paying for itself. That crossover is the internal rate of return, which the IRR calculator finds precisely.
Using NPV well
- Forecast cash, not accounting profit. Include working capital, maintenance and taxes; exclude non-cash items such as depreciation (though depreciation’s tax savings are real cash).
- Match rate and cash flows. Nominal cash flows with a nominal rate, or real with real — never a mix.
- Compare mutually exclusive options by NPV, not IRR. The larger NPV adds more value even when a smaller project has a higher percentage return.
- Run scenarios. A low, base and high case shows how much the decision depends on the forecast.
If there is no upfront investment and you simply want the value of a stream of income, the present value of cash flows calculator is the better fit.
NPV results depend entirely on the forecasts and rate you enter. They are estimates for analysis, not investment advice.
Frequently asked questions
What does a positive NPV mean?
It means the project's future cash flows, discounted at your required rate of return, are worth more than what it costs today. A positive NPV project earns more than the discount rate; a negative one earns less; zero means it earns exactly that rate.
What discount rate should I use?
Use the return you require for an investment with this level of risk — often a company's weighted average cost of capital, a hurdle rate set by management, or for an individual, the return available on a comparable alternative. Riskier projects deserve higher rates.
How is NPV related to IRR?
The IRR is the discount rate at which NPV equals zero. If the IRR is above your discount rate, the NPV is positive. For the example on this page, NPV is positive at 8% and turns negative between 15% and 16%, where the 15.56% IRR sits.
What is the profitability index?
The present value of future cash flows divided by the initial investment. A value above 1.0 corresponds to a positive NPV. It is useful for ranking projects when capital is limited, because it shows value created per dollar invested.
What is discounted payback?
The time it takes for discounted cash flows to repay the initial investment. It is always longer than the simple payback period because later dollars count for less, and it ignores everything that happens after the investment is recovered.