Profit & Margin
NPV Calculator
Discount future cash flows to their present value.
NPV Calculator
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How it works
Net present value discounts every cash flow of a project back to today and sums them, so you can compare money at different times on an equal footing. The first value is usually the initial investment and is negative.
If the NPV is positive, the project earns more than your discount rate and is worth doing; if negative, it falls short. The discount rate is the return you require, often the cost of capital.
Formula
NPV = Σ CFt / (1 + r)t
CFt = cash flow in period t, r = discount rate. Period 0 is today, so it is not discounted.
Worked example
Example: invest $10,000, then receive $3,000, $4,000, $4,000 and $3,000 over four years at a 10% discount rate. NPV = −10000 + 3000/1.1 + 4000/1.21 + 4000/1.331 + 3000/1.4641 = $667.44. Positive, so the project clears a 10% hurdle.
WORKED EXAMPLE — DEFAULT INPUTS
What to know
NPV is sensitive to the discount rate in a predictable way: raise the rate and the result falls, because future cash flows are discounted harder. If a project clears a conservative rate like 12%, it will clear an aggressive 8% easily. Test two or three rates before you commit.
Cash-flow timing is just as important. Two projects with the same total cash can have very different NPVs when one pays early and the other pays late. Early money is worth more, which is why fast-payback projects often beat slow ones even at equal totals.
Test the project at your required return first, then at a higher hurdle rate; if the NPV stays positive at both, the deal is genuinely robust rather than barely clearing one assumption.
FAQ
What discount rate should I use?
Usually the weighted cost of capital or the return you could earn elsewhere at the same risk. The higher the rate, the harder a project must work to look good.
What if NPV is exactly zero?
The project exactly earns the discount rate. It is a borderline case; accept it only if the assumptions are conservative.
How is NPV different from IRR?
NPV gives a dollar result for a chosen rate. IRR solves for the rate that makes NPV zero. Use NPV to judge a deal, IRR to report its yield.
Can I enter annual or monthly flows?
Yes, but match the rate to the period. Monthly flows need a monthly discount rate, annual flows an annual one.