NPV Calculator
Find the net present value, IRR and payback period of an investment or project
Investment and Cash Flows
Your required return or cost of capital
Paid today
Cash flow at the end of each year
- Year 1
- Year 2
- Year 3
- Year 4
- Year 5
Net present value
$1,461
At a 8.0% required return, the project adds about $1,461 of value in today's dollars.
Internal rate of return
11.33%
the rate where NPV is zero
Profitability index
1.10
PV of inflows ÷ investment
Payback period
3.8 years
undiscounted
Discounted payback
4.6 years
at 8.0%
Discounted Cash Flow Table
| Year | Cash Flow | Discount Factor | Present Value | Cumulative PV |
|---|---|---|---|---|
| Now | -$15,000 | 1.0000 | -$15,000 | -$15,000 |
| 1 | $3,000 | 0.9259 | $2,778 | -$12,222 |
| 2 | $4,000 | 0.8573 | $3,429 | -$8,793 |
| 3 | $4,000 | 0.7938 | $3,175 | -$5,618 |
| 4 | $5,000 | 0.7350 | $3,675 | -$1,942 |
| 5 | $5,000 | 0.6806 | $3,403 | $1,461 |
What NPV Tells You
Net present value converts every future cash flow into today's dollars using your required return, then subtracts what you invest. A positive NPV means the project earns more than that return; a negative NPV means you would do better elsewhere. It is the standard tool for comparing investments and capital projects.
The Formulas
NPV = Σ CFₜ ÷ (1 + r)ᵗ − initial investment
PI = PV of inflows ÷ initial investment
IRR: the r where NPV = 0
CFₜ = cash flow in year t, r = discount rate
Using NPV Well
- •Use a discount rate that reflects the project's risk
- •Prefer NPV over IRR when projects differ in size or timing
- •Test a range of discount rates, not just one
- •Include working capital and a final sale or salvage value in cash flows
- •A positive NPV only helps if the cash flow forecasts are realistic