NPV Calculator
Calculate Net Present Value for investment analysis. Evaluate project profitability by discounting future cash flows to present value.
Upfront cost (Year 0)
Required rate of return / WACC
Net Present Value
$48,033
Accept ProjectProfitability Index
1.48
Value creating
Present Value of Cash Flows
| Year | Cash Flow | Discount Factor | Present Value |
|---|---|---|---|
| 0 | -$100,000 | 1.0000 | -$100,000 |
| 1 | $30,000 | 0.9091 | $27,273 |
| 2 | $35,000 | 0.8264 | $28,926 |
| 3 | $40,000 | 0.7513 | $30,053 |
| 4 | $45,000 | 0.6830 | $30,736 |
| 5 | $50,000 | 0.6209 | $31,046 |
| Net Present Value | $48,033 | ||
NPV
$48.0K
PI
1.48
Payback
2.9 yrs
Simple ROI
100.0%
NPV Decision Rule:
- NPV > 0: Accept - creates shareholder value
- NPV < 0: Reject - destroys shareholder value
- NPV = 0: Indifferent - meets required return exactly
Value-Creating Investment
This project adds $48,033 in value above the 10% required return. The PI of 1.48 means you get $1.48 of value per $1 invested.
NPV vs Other Investment Metrics
NPV
Dollar value created. Best for accept/reject decisions.
IRR
Return rate where NPV=0. Good for comparing projects.
Payback Period
Time to recover investment. Ignores time value of money.
Profitability Index
Value per dollar invested. Best when capital is limited.
Frequently Asked Questions
NPV Formula and the Capital Budgeting Decision Rule
Net Present Value (NPV) equals the sum of all future cash flows discounted to present value, minus the initial investment: NPV = -C₀ + Σ(CFₜ / (1+r)^t). A positive NPV means the project generates returns above the required rate of return (discount rate) and creates value. A negative NPV means the project destroys value and should be rejected. NPV = 0 means the project earns exactly the discount rate.
Consider a $100,000 investment generating cash flows of $30,000, $35,000, $40,000, $45,000, and $50,000 over 5 years. At a 10% discount rate, the NPV is approximately $48,420. This means the project creates $48,420 in value above what a 10% return on the same capital would produce. The Profitability Index (PI) is 1.48 ($148,420 / $100,000), meaning every dollar invested generates $1.48 in present-value returns.
| Discount Rate | NPV | Decision |
|---|---|---|
| 5% | +$73,956 | Accept (high value creation) |
| 10% | +$48,420 | Accept |
| 15% | +$27,578 | Accept |
| 20% | +$10,467 | Accept (marginal) |
| 25% | -$3,682 | Reject |
The discount rate at which NPV equals exactly zero is the project's IRR — in this case approximately 23.4%. Any discount rate below the IRR produces a positive NPV; any rate above produces a negative NPV.
Choosing the Discount Rate: WACC and Risk Adjustment
The Weighted Average Cost of Capital (WACC) is the most common discount rate for corporate NPV analysis. It blends the cost of equity and cost of debt, weighted by their proportion in the company's capital structure: WACC = (E/V x Re) + (D/V x Rd x (1 - Tc)), where E is equity, D is debt, V is total value, Re is cost of equity, Rd is cost of debt, and Tc is the corporate tax rate.
Typical WACC values range from 6-8% for large, stable companies (utilities, consumer staples) to 12-15% for growth companies and 15-25% for startups and high-risk ventures. The S&P 500 average WACC is approximately 8-10%. Using a WACC that is too low inflates NPV and may lead to accepting value-destroying projects. Using one that is too high rejects profitable opportunities.
For personal investment decisions, the discount rate should reflect your opportunity cost — the return you could earn on the next-best alternative. If your brokerage portfolio earns an average 8% annually, use 8% as the discount rate for evaluating a rental property or small business investment. For risk adjustment, add a premium of 2-5% above your baseline rate for projects with higher uncertainty, illiquidity, or concentration risk.
NPV vs IRR vs Payback Period: Sensitivity Analysis
Sensitivity analysis tests how NPV changes when key assumptions vary. The three most impactful variables are: (1) cash flow magnitude — a 10% reduction in projected cash flows typically reduces NPV by 15-20%, (2) discount rate — a 2% increase in discount rate can reduce NPV by 20-30% on a 5-year project, and (3) project duration — shortening a project by 1 year eliminates the final (often largest) cash flow.
| Metric | Measures | Strengths | Weaknesses |
|---|---|---|---|
| NPV | Dollar value created above required return | Accounts for TVM; single answer; additive | Requires discount rate assumption |
| IRR | Annualized return rate | Intuitive percentage; no discount rate needed | Multiple solutions possible; reinvestment assumption |
| Payback Period | Time to recover initial investment | Simple; measures liquidity risk | Ignores TVM; ignores cash flows after payback |
| Discounted Payback | Time to recover in PV terms | Combines payback simplicity with TVM | Still ignores post-payback cash flows |
When NPV and IRR conflict on mutually exclusive projects, always follow NPV. NPV measures absolute value creation and is additive (project A's NPV + project B's NPV = portfolio NPV). IRR can mislead when comparing projects of different scales ($100K vs $1M), different durations (3 years vs 10 years), or different cash flow patterns (front-loaded vs back-loaded). The Profitability Index (NPV/Investment) helps rank projects when capital is rationed — choose the combination of projects with the highest total NPV that fits within the budget.
Related Calculators
Official References
Learn more about NPV and capital budgeting:
- CFI: Net Present Value Guide
Professional guide to NPV calculations and applications
This calculator provides estimates. Actual results depend on accuracy of cash flow projections and appropriate discount rate selection.