This NPV calculator finds the net present value of a project: every future cash flow discounted back to today at your rate, minus what it costs to start — the single number capital budgeting trusts most.
NPV = Σ CFₜ ÷ (1 + r)ᵗ − Initial Cost
Each future dollar is divided by (1 + r) raised to its year — at 10%, a year-4 dollar is worth 68.3¢ today. Sum the discounted inflows, subtract the cost, and the sign renders the verdict: positive NPV creates wealth, negative destroys it, at that discount rate. The rate that makes NPV exactly zero is the project’s IRR; single-sum discounting lives on the Present Value Calculator. Part of our Finance Calculators collection.
Worked Example (Verified)
- Invest $10,000; inflows 3,000 / 4,000 / 5,000 / 6,000; discount 10% (defaults): PVs = 2,727.27 · 3,305.79 · 3,756.57 · 4,098.08 → total $13,887.71
- NPV = 13,887.71 − 10,000 = +$3,887.71, profitability index 1.389 — accept, on these projections
- Rate sensitivity is the lesson: at 20% the same project still clears +$1,065; at 25% it dips to ≈ −$22 — the crossing sits just under 25% — NPV is a function of the rate, which is why the discount rate choice is the real argument in any boardroom
- Mid-stream outflows are fine: enter a negative year (e.g., a year-3 overhaul of −2,000) and it discounts like any other flow
Choosing the Discount Rate (the Whole Game)
- Corporate practice: the firm’s WACC (weighted average cost of capital) — the return the money could earn at similar risk elsewhere.
- Personal projects: your actual alternative — mortgage rate for debt-paydown comparisons, portfolio expected return for investments.
- Riskier flows earn higher rates (venture projects at 25–40% are confessing their mortality through the rate).
- Always run NPV at ±5 points around your rate and watch the verdict’s stability — the sensitivity table is the honest deliverable.
Related Tools
- IRR Calculator — the rate where NPV = 0
- Payback Period Calculator — when the cash comes home
- Finance Calculators — the full collection
Frequently Asked Questions
How do you calculate NPV?
Discount each cash flow: PV = CFₜ ÷ (1 + r)ᵗ, sum them, subtract the initial investment. The worked example: flows discounted at 10% sum to $13,887.71 against a $10,000 cost → NPV +$3,887.71.
What does a positive NPV mean?
The project earns more than the discount rate requires — it adds that many dollars of value in today’s terms after fully compensating for time and the assumed risk. Rational capital budgeting accepts positive-NPV projects and rejects negative ones.
NPV or IRR — which is better?
NPV for decisions: it’s in dollars, handles any flow pattern, and never produces multiple answers. IRR is the better communication number (“this yields 23%”) but can mislead with non-conventional flows and mutually exclusive projects of different scales. Pros compute both — the tools are paired here.
What discount rate should I use?
Your opportunity cost: WACC for companies, the realistic alternative return for personal decisions, raised for risk. Because NPV flips sign across rates (this example breaks even at ≈ 24.9%), report the rate you used and the sensitivity — an NPV without its rate is half an answer.
Can NPV handle irregular cash flows?
Yes — negative years, zeros and lump sums all slot into the sum unchanged (this calculator accepts comma-separated lists of any length). Irregular timing (mid-year flows) needs the XNPV convention of actual dates — a spreadsheet refinement beyond the annual grid here.
Is this NPV calculator free?
Yes — free, instant, no sign-up.