NPV Calculator
Determine the Net Present Value of an investment by discounting all future cash flows back to today using your required rate of return.
Frequently Asked Questions
What is Net Present Value (NPV) and how is it calculated?
NPV = sum of (Cash Flow_t ÷ (1 + r)^t) − Initial Investment, where r is the discount rate and t is the time period. It converts all future cash flows into today's dollars and subtracts the upfront cost. A positive NPV means the project creates value.
What does a positive or negative NPV mean?
A positive NPV means the investment earns more than the required rate of return — it creates shareholder value. A negative NPV means it destroys value at that discount rate. An NPV of exactly $0 means the project earns exactly your required return (break-even on a value basis).
What discount rate should I use for NPV?
Use your Weighted Average Cost of Capital (WACC) for corporate projects — typically 8–12% for established businesses, 15–25% for higher-risk ventures. For personal investments, use your opportunity cost rate (e.g., expected stock market return of 7–10%). The discount rate is the biggest assumption in any NPV analysis.
What is the Profitability Index (PI) and how does it relate to NPV?
PI = (NPV + Initial Investment) ÷ Initial Investment = Total PV of cash flows ÷ Investment. A PI > 1 is profitable. It is useful when comparing projects of different sizes — a small project with PI of 2.0 may be better than a large project with PI of 1.2, even if the larger project has higher absolute NPV.
What is the difference between NPV and IRR?
NPV gives you a dollar amount of value created; IRR gives you a percentage rate of return. NPV is preferred for decision-making because it accounts for project scale. IRR can give misleading results for non-conventional cash flows (multiple sign changes). Use NPV as the primary metric; use IRR as a secondary check.