— Business & Valuation
NPV Calculator
Calculate net present value from upfront investment, future cash flows, and discount rate. See whether a project clears its hurdle, plus profitability index, payback, discounted payback, IRR, and the NPV-versus-rate profile.
Net present value
$48,033
- Decision
- Accept (NPV > 0)
- Profitability index
- 1.48
- Payback period
- 2 yrs 11 mos
- Discounted payback
- 3 yrs 5 mos
- IRR
- 25.75%
- PV of inflows
- $148,033
Try: A profitable project, Generated 8% growth, Reject at a high hurdle, Compare three rates
— The cash-flow schedule
| Year | Cash flow | Discount factor | PV | Cumulative PV |
|---|---|---|---|---|
| 0 | $-100,000 | 1 | $-100,000 | $-100,000 |
| 1 | $30,000 | 0.909 | $27,273 | $-72,727 |
| 2 | $35,000 | 0.826 | $28,926 | $-43,802 |
| 3 | $40,000 | 0.751 | $30,053 | $-13,749 |
| 4 | $45,000 | 0.683 | $30,736 | $16,987 |
| 5 | $50,000 | 0.621 | $31,046 | $48,033 |
| NPV | $48,033 | $48,033 |
— The value at a glance
Download— How it works
NPV = Σ CFₜ ÷ (1 + r)ᵗ − initial investment. Profitability index = PV of inflows ÷ initial investment (> 1 to accept). IRR is the rate at which NPV = 0.
The decision rule, and why it works
NPV applies one clean rule: discount every future cash flow to today at your required return, add them up, subtract what you pay upfront, and accept the project if the result is positive. The logic is airtight — a positive NPV means the project earns more than the next-best use of the same money at the same risk, so it creates value; a negative NPV means it destroys it. The required return is the heart of it: set it to your cost of capital (the WACC for a company, or your own hurdle for a personal investment). The calculator gives a clear accept/reject verdict and colours the NPV accordingly, so the answer isn’t buried in a number.
Worked example — invest $100,000, get $30k / $35k / $40k / $45k / $50k over five years at a 10% hurdle: The five flows discount to about $148,000 in today’s money. NPV ≈ $48,000 — comfortably positive, so accept; the profitability index is 1.48 (1.48 of value per dollar in).
Payback, profitability index and IRR
NPV is the headline, but three companions sharpen the decision. The profitability index — present value of inflows per dollar invested — ranks projects when capital is scarce; above 1.0 means accept. Payback shows how many periods until the plain cash recovers the outlay, and discounted payback does the same on a present-value basis, which is the honest breakeven — the cumulative column in the schedule is where it visibly crosses zero. And the IRR is the discount rate at which NPV hits exactly zero: accept the project while your hurdle stays below it. NPV and IRR are two views of the same thing, which is why the NPV-profile chart — plotting NPV against the discount rate — is worth featuring: the point where the curve crosses the axis is the IRR.
Getting the inputs honest
A few refinements keep the answer trustworthy. Match the period type to your flows — annual, quarterly or monthly — and the rate is split across the periods in a year. Use after-tax mode to convert pre-tax operating flows, which adds back the depreciation tax shield, because tax is real and a pre-tax NPV flatters the project. Switch to real terms if your flows are in today’s money, so you discount at the real rate rather than double-counting inflation. Add a salvage value for what’s recovered at the end. And because the verdict can flip with the hurdle rate, compare a couple of rates side by side — watching the NPV erode as the required return rises tells you how much margin of safety the decision really has. Not investment advice; an NPV is only as good as the cash-flow forecast behind it.
— Reader questions
What does a positive NPV mean?
That the project earns more than your required return, so it adds value over the next-best use of the money — the rule is to accept it. A negative NPV means it falls short and destroys value; near zero, it just clears the hurdle and the decision hinges on the assumptions.
What discount rate should I use for NPV?
Your required rate of return — for a company, usually the weighted average cost of capital (WACC); for a personal investment, the return you could earn elsewhere at similar risk. A higher rate discounts future flows more heavily and lowers the NPV.
What is the difference between payback and discounted payback?
Payback counts the periods until the plain cumulative cash recovers the investment; discounted payback does the same using present values, so it accounts for the time value of money and is always the longer, more honest figure. The schedule’s cumulative column shows exactly where each crosses zero.
How are NPV and IRR related?
The IRR is the discount rate at which NPV equals zero. So as you raise the discount rate, NPV falls, and where it hits zero is the IRR. Accept a project while your required return stays below its IRR. The NPV-profile chart plots this relationship directly.
What is the profitability index?
The present value of the inflows divided by the initial investment — the value created per unit of capital. Above 1.0 means accept (it’s equivalent to a positive NPV), and it’s especially useful for ranking projects when you can’t fund them all.