How this calculator works
Net present value converts a stream of future cash flows into a single number in today's dollars, so it can be compared directly against the cost of making the investment. Each future cash flow is discounted back to the present using a required rate of return; the discounted values are then summed and the initial investment is subtracted.
Enter the upfront cost as a positive number, list the expected cash flow for each future year separated by commas, and choose a discount rate that reflects your required return or cost of capital. A positive NPV means the investment is expected to add value beyond that required return; a negative NPV means it is not.
The formula
NPV = −Initial investment + Σ [CFₜ ÷ (1 + r)ᵗ] for t = 1 to nCFₜ is the cash flow at the end of year t, r is the discount rate as a decimal, and n is the number of years of cash flows. Cash flows are assumed to arrive at the end of each year.
Worked example: $10,000 investment, 10% discount rate
- Discount each year's cash flow back to today at 10%: $3,000 ÷ 1.10 ≈ $2,727.27 in year 1.
- $4,000 ÷ 1.10² ≈ $3,305.79 in year 2, $5,000 ÷ 1.10³ ≈ $3,756.57 in year 3, and $2,000 ÷ 1.10⁴ ≈ $1,366.03 in year 4.
- Adding the four present values gives about $11,155.66.
- Subtract the $10,000 initial investment: NPV ≈ $1,155.66. Since NPV is positive, the project is expected to earn more than the 10% required return.
Frequently asked questions
What discount rate should I use for a project's cash flows?
Use your required rate of return, or your cost of capital if this is a business investment — the rate you could otherwise earn on an alternative investment of similar risk. A higher discount rate makes future cash flows worth less today, which lowers NPV.
What does a negative NPV mean?
A negative NPV means the discounted cash flows do not cover the initial investment at the chosen discount rate, so the investment is expected to underperform that required return, even though the raw cash flows may still add up to more than the initial cost.
How is NPV different from IRR?
NPV expresses the result in a currency amount at a discount rate you choose. Internal rate of return (IRR) instead solves for the discount rate at which NPV equals exactly zero, giving a percentage you can compare against your required return.
Can NPV be used to compare projects of different sizes?
NPV is a dollar amount, so a larger project can show a bigger NPV simply because it involves more money, not because it is a better use of capital per dollar invested. For comparing efficiency across different-sized projects, a profitability index or IRR is often used alongside NPV.
Does this account for taxes or inflation?
No. Enter after-tax cash flows if taxes matter to your decision, and use a nominal discount rate with nominal (inflation-included) cash flows, or a real discount rate with real cash flows — mixing the two produces an inconsistent result.