Finance
NPV Calculator
Calculate the net present value of an investment from a discount rate and series of annual cash flows. Includes a discounted cash flow breakdown by year.
Annual Cash Flows
Year 1
Year 2
Year 3
Year 4
Year 5
Net Present Value (NPV)
—
Advertisement
NPV Formula
Net Present Value
NPV = −C₀ + Σ(CFₜ ÷ (1 + r)ᵗ)
Present Value of a Cash Flow
PV = CF ÷ (1 + r)ᵗ
How to Interpret NPV
Positive NPV — the project is expected to create value above the cost of capital. In general, a positive-NPV project should be accepted.
Zero NPV — the project exactly meets the required return. You break even in present-value terms.
Negative NPV — the project destroys value at the chosen discount rate. The investment does not meet the required return threshold and should typically be rejected.
Frequently asked questions
What is Net Present Value (NPV)?
Net Present Value is the sum of all future cash flows from an investment, discounted to today's dollars, minus the initial investment. A positive NPV means the project is expected to generate more value than it costs; a negative NPV means the opposite.
How do you calculate NPV?
NPV = −Initial Investment + Σ(Cash Flow_t ÷ (1 + discount rate)^t). Each future cash flow is discounted by the rate raised to the power of the year number. The sum of all discounted cash flows minus the upfront cost gives the NPV.
What discount rate should I use for NPV?
The discount rate is typically the cost of capital — the return you could earn on an alternative investment of similar risk. For a business, this is often the Weighted Average Cost of Capital (WACC). For personal decisions, you might use the expected return on your investment portfolio (e.g. 8–10%).
What is the difference between NPV and IRR?
NPV gives a dollar amount representing value created or destroyed. IRR gives a percentage return. NPV is generally considered more reliable for comparing projects of different sizes. IRR is useful for comparing a project's return against a hurdle rate.
What does a negative NPV mean?
A negative NPV means the project is expected to lose value in present-value terms at the chosen discount rate. The investment destroys more value than it creates, given the cost of capital. It does not necessarily mean the project is cash-flow negative — it means it doesn't meet the required return threshold.