NPV Calculator

Calculate Net Present Value of an investment. Determine if a project is profitable based on discounted cash flows.

Last updated: September 2026

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Discount Rate (% per year)

Initial Investment

Cash Flows by Year

Year 1

Year 2

Year 3

Year 4

Year 5

Net Present Value (NPV)

$48,032.61

Investment is profitable

Initial Investment

$100,000.00

PV of Cash Flows

$148,032.61

Profitability Index (PI)

1.480

PI > 1: Accept the project

Payback Period

2 years 11 months

Discounted Payback

3 years 5 months

Total Undiscounted Cash Flows

$200,000.00

Year-by-Year Breakdown

Year	Cash Flow	Present Value	Discount Factor	Cumulative CF	Cumulative PV
0 (Investment)	-$100,000.00	-$100,000.00	1.0000	-$100,000.00	-$100,000.00
1	$30,000.00	$27,272.73	0.9091	-$70,000.00	-$72,727.27
2	$35,000.00	$28,925.62	0.8264	-$35,000.00	-$43,801.65
3	$40,000.00	$30,052.59	0.7513	$5,000.00	-$13,749.06
4	$45,000.00	$30,735.61	0.6830	$50,000.00	$16,986.54
5	$50,000.00	$31,046.07	0.6209	$100,000.00	$48,032.61
Total	$100,000.00	$48,032.61

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What is Net Present Value (NPV)?

Net Present Value (NPV) is the cornerstone of capital budgeting. It calculates the present-day value of all future cash flows from an investment, discounted at your required rate of return, minus the initial investment. A positive NPV means the investment creates value beyond your cost of capital. A negative NPV means it destroys value. NPV is the single most reliable metric for investment appraisal because it accounts for the time value of money — a dollar today is worth more than a dollar in the future.

NPV Formula with Example

NPV = −C₀ + CF₁/(1+r)¹ + CF₂/(1+r)² + ... + CFₙ/(1+r)ⁿ

Where C₀ = initial investment, CFₜ = cash flow in year t, r = discount rate (decimal).

Example: Initial investment $100,000. Cash flows: $30K, $35K, $40K, $45K, $50K over 5 years. Discount rate 10%.

NPV = −100,000 + 30,000/1.1 + 35,000/1.21 + 40,000/1.331 + 45,000/1.464 + 50,000/1.611 = +$42,578 → Accept the investment.

Choosing the Right Discount Rate

Corporate projects: Use WACC (Weighted Average Cost of Capital) — typically 8–15%.
Real estate: Use your required equity return — typically 8–12%.
Personal investments: Use your opportunity cost — what you could earn in a comparable risk investment.
Government bonds: Use the risk-free rate (US 10Y Treasury ~4–5%) plus a risk premium for riskier projects.

NPV vs IRR — When to Use Each

NPV tells you the absolute dollar value added by the investment. IRR tells you the percentage return rate. Use NPV for comparing mutually exclusive projects of different sizes (choose the highest NPV). Use IRR to screen projects against a hurdle rate. When NPV and IRR conflict, always prefer NPV for the final decision — IRR can be misleading for projects with unconventional cash flows (multiple sign changes).

What This Calculator Computes

NPV: Total value added (or destroyed) by the investment in today's dollars.
Profitability Index (PI): PV of future cash flows ÷ initial investment. PI > 1 = profitable. Used for capital rationing — rank competing projects by PI when capital is limited.
Payback Period: Years to recover the initial investment (undiscounted).
Discounted Payback Period: Years to recover initial investment using discounted cash flows — more accurate than simple payback period.
Year-by-year PV table: Shows present value and cumulative NPV for each year — exportable as CSV.

Frequently Asked Questions

What is Net Present Value (NPV)?

NPV is the difference between the present value of future cash inflows and the initial investment. A positive NPV means the investment is expected to be profitable — it creates value above your cost of capital. A negative NPV means it destroys value.

What discount rate should I use for NPV?

The discount rate typically reflects your required rate of return or the weighted average cost of capital (WACC). Common rates: corporate projects 8–15%, real estate 8–12%, low-risk government projects 4–6%. When in doubt, use your WACC or the rate you could earn in an alternative investment of similar risk.

What does a negative NPV mean?

A negative NPV indicates the projected earnings from the investment, discounted to present value, are less than the initial cost, meaning the investment would lose money relative to your required return. It does not always mean avoid the investment — some projects have strategic value beyond pure financial return.

What is the NPV formula?

NPV = −C₀ + Σ[CFₜ / (1+r)ᵗ], where C₀ is the initial investment, CFₜ is the cash flow in year t, r is the discount rate (as a decimal), and t is the time period. Sum the discounted cash flows for all years and subtract the initial investment. Positive result = accept; negative = reject.

What is Profitability Index and how is it used?

Profitability Index (PI) = Present Value of Future Cash Flows ÷ Initial Investment. PI > 1 means the investment is profitable. PI is most useful for capital rationing — when you have limited capital and must choose among several positive-NPV projects, rank by PI (not NPV) to maximize total value from available funds.

What is the difference between NPV and Payback Period?

NPV discounts all cash flows to present value and shows total wealth created in dollars — it is a comprehensive investment metric. Payback Period only counts how long to recover the initial outlay, ignoring the time value of money and all returns after payback. NPV is superior for investment decisions; payback period is useful as a quick liquidity risk check.

Can NPV be used for real estate investment analysis?

Yes. Set the initial investment as purchase price plus closing costs. Annual cash flows are net rental income minus mortgage payments, taxes, maintenance, and vacancies. In the final year, add the projected net sale proceeds. A discount rate of 8–12% is typical for real estate. Positive NPV at your chosen rate means the property meets your return target.

Why does a higher discount rate reduce NPV?

A higher discount rate means you require a higher return on your money. Future cash flows are worth less in today's dollars because you could have alternatively earned more by investing elsewhere. Doubling the discount rate from 5% to 10% can turn a positive NPV negative — this is why growth-stage companies with high cost of capital reject projects that a low-cost-of-capital competitor would accept.

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Year

Cash Flow

Present Value

Discount Factor

Cumulative CF

Cumulative PV

0 (Investment)

-$100,000.00

1.0000

-$100,000.00

$30,000.00

$27,272.73

0.9091

-$70,000.00

-$72,727.27

$35,000.00

$28,925.62

0.8264

-$35,000.00

-$43,801.65

$40,000.00

$30,052.59

0.7513

$5,000.00

-$13,749.06

$45,000.00

$30,735.61

0.6830

$50,000.00

$16,986.54

$50,000.00

$31,046.07

0.6209

$100,000.00

$48,032.61

Total

$100,000.00

$48,032.61

What is Net Present Value (NPV)?

NPV Formula with Example

NPV = −C₀ + CF₁/(1+r)¹ + CF₂/(1+r)² + ... + CFₙ/(1+r)ⁿ

Where C₀ = initial investment, CFₜ = cash flow in year t, r = discount rate (decimal).

Example: Initial investment $100,000. Cash flows: $30K, $35K, $40K, $45K, $50K over 5 years. Discount rate 10%.

NPV = −100,000 + 30,000/1.1 + 35,000/1.21 + 40,000/1.331 + 45,000/1.464 + 50,000/1.611 = +$42,578 → Accept the investment.

Choosing the Right Discount Rate

Corporate projects: Use WACC (Weighted Average Cost of Capital) — typically 8–15%.

Real estate: Use your required equity return — typically 8–12%.

Personal investments: Use your opportunity cost — what you could earn in a comparable risk investment.

Government bonds: Use the risk-free rate (US 10Y Treasury ~4–5%) plus a risk premium for riskier projects.

NPV vs IRR — When to Use Each

What This Calculator Computes

NPV: Total value added (or destroyed) by the investment in today's dollars.

Profitability Index (PI): PV of future cash flows ÷ initial investment. PI > 1 = profitable. Used for capital rationing — rank competing projects by PI when capital is limited.

Payback Period: Years to recover the initial investment (undiscounted).

Discounted Payback Period: Years to recover initial investment using discounted cash flows — more accurate than simple payback period.

Year-by-year PV table: Shows present value and cumulative NPV for each year — exportable as CSV.

Frequently Asked Questions

What is Net Present Value (NPV)?

What discount rate should I use for NPV?

What does a negative NPV mean?

What is the NPV formula?

What is Profitability Index and how is it used?

What is the difference between NPV and Payback Period?

Can NPV be used for real estate investment analysis?

Why does a higher discount rate reduce NPV?

NPV Calculator

Year-by-Year Breakdown

What is Net Present Value (NPV)?

NPV Formula with Example

Choosing the Right Discount Rate

NPV vs IRR — When to Use Each

What This Calculator Computes

Frequently Asked Questions

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Get Tool Tips & Updates

NPV Calculator

Year-by-Year Breakdown

What is Net Present Value (NPV)?

NPV Formula with Example

Choosing the Right Discount Rate

NPV vs IRR — When to Use Each

What This Calculator Computes

Frequently Asked Questions

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Get Tool Tips & Updates