NPV Calculator

1. Enter the discount rate, the return you require or your cost of capital.
2. Enter the initial investment, the cash you pay out at the start.
3. List the cash flow for each year, year 1 first, separated by spaces or commas.
4. Read the NPV, the present value of the cash flows and the profitability index.

Each result helps judge the investment from a slightly different angle:

Net present value is the difference between what an investment will pay back, measured in todays money, and what it costs to make. It is the most widely used test in capital budgeting because it answers the question directly: after allowing for the return I could earn elsewhere, does this project make me richer?

Money received in the future is worth less than money today, so each year of cash flow is discounted back to the present at a chosen rate. Adding those present values and subtracting the upfront cost gives the NPV. A positive result means the project earns more than the discount rate; a negative one means you would do better putting the money into the alternative the rate represents.

NPV builds on the idea of present value. For a single sum or a level stream of payments, the present value calculator is simpler; NPV handles uneven cash flows and a cost up front.

It discounts each yearly cash flow by the compounding factor for its year, adds them up and subtracts the initial investment.

In compact form, NPV = sum of CF_t/(1+r)^t - C0 where CF_t is the cash flow in year t, r the discount rate and C0 the initial investment.

1. Divide each cash flow by (1 + r) raised to its year number.
2. Add the discounted cash flows to get their present value.
3. Subtract the initial investment to get NPV, and divide instead to get the profitability index.

Cash flows are assumed to arrive at the end of each year, which is the standard textbook and spreadsheet convention.

A small business can buy equipment for 10,000 that is expected to bring in 3,000, 4,000, 4,000 and 3,000 over the next four years. Its required return is 8 percent.

Discounted, those flows are worth about 2,778, 3,429, 3,175 and 2,205, a present value of about 11,588. Subtracting the 10,000 cost gives an NPV of about 1,588 and a profitability index of about 1.159. The investment clears the 8 percent hurdle comfortably.

Raise the required return to 12 percent and the NPV falls to about 621, still positive but thinner. Now consider paying 50,000 for five years of 12,000 at 10 percent: you get 60,000 back in total, yet the NPV is about -4,511, because the returns are not enough once time is priced in.

Three popular tools for judging an investment, each with strengths and blind spots.

When projects compete, NPV is generally preferred because it measures value directly. To find the break-even rate for a set of flows, use the IRR calculator.

The Discount Rate

A higher rate shrinks the present value of every future cash flow, especially distant ones, so NPV falls as the rate rises.

Timing of Cash Flows

Cash that arrives early is discounted less. Two projects with the same total can have very different NPVs.

Size of the Investment

The upfront cost is not discounted, so every dollar of cost reduces NPV one for one.

Forecast Accuracy

NPV is only as reliable as the cash flow estimates behind it. Optimistic forecasts produce optimistic NPVs.

Project Length

Longer projects add more cash flows but those late flows count for less, and they carry more uncertainty.

Capital Budgeting

Decide whether to buy equipment, open a location or launch a product.

Comparing Projects

Rank competing uses of limited capital by the value each creates.

Property and Rental Investments

Value a purchase against the rent and sale proceeds you expect over a holding period.

Personal Decisions

Weigh an upfront cost such as solar panels or a qualification against the savings or income it brings.

1. Using the Wrong Discount Rate

The rate should match the risk of the project. Using a low safe rate for a risky venture overstates NPV.

2. Discounting the Initial Investment

The upfront cost happens at year 0 and is not discounted. Spreadsheet NPV functions often trip people up here.

3. Mixing Nominal and Real Figures

If cash flows include inflation, use a nominal rate; if they are in todays prices, use a real rate.

4. Leaving Out Costs

Maintenance, working capital and tax all reduce cash flow and belong in the forecast.

5. Forgetting a Salvage Value

If an asset can be sold at the end, add that amount to the final years cash flow.

The discounting math is exact, but the answer is only as trustworthy as the inputs.

Net present value is the present value of all future cash flows from an investment minus its upfront cost. It shows how much value the investment creates in todays money.

NPV = sum of CF_t / (1 + r)^t minus C0, where CF_t is the cash flow in year t, r the discount rate and C0 the initial investment.

A positive NPV means the investment returns more than the discount rate, so it adds value. A negative NPV means it falls short of that required return.

Use your cost of capital or the return you could earn on an investment of similar risk. Businesses often use their weighted average cost of capital.

NPV measures value in money at a chosen rate. IRR is the rate that makes NPV exactly zero. They usually agree on a single project but can conflict when ranking projects.

It is the present value of cash flows divided by the initial investment. A value above 1 corresponds to a positive NPV.

Yes. Enter a minus sign for any year with a net outflow, such as a major repair or expansion.

List one number per year, year 1 first, separated by spaces or commas. Leave out thousands separators, so write 12000 rather than 12,000.

No. The calculation runs in your browser, and nothing you enter is sent anywhere unless you Save a result, which stays on this device only.

• Net present value (Wikipedia).
• Net present value explained (Corporate Finance Institute).
• Net present value (Investopedia).