A dollar today is worth more than a dollar you will receive in five years. That single idea — the time value of money — is what Net Present Value, or NPV, quantifies. This NPV calculator takes your upfront investment and every future cash flow a project is expected to generate, discounts each one back to today's dollars at your required rate of return, and adds them up. The result tells you, in a single number, whether the opportunity creates wealth or destroys it.
Enter your figures on the left and the result card updates instantly. A positive NPV means the project is expected to earn more than your discount rate; a negative NPV means it should be rejected.
How to Use
- Enter the Initial Investment (Year 0) as a negative number — for example,
-100000for a $100,000 outlay today. Money paid out counts against the project; money coming in counts for it. - Set your Discount Rate — the annual return you could earn elsewhere on a comparable-risk investment, often called the cost of capital. A common starting point is 8%–12% for a business project.
- Fill in each year's net Cash Flow. Year 1 through Year 3 are required; leave Year 4 and Year 5 at
0if the project ends earlier. - Treat a year that requires extra spending (such as maintenance or a rebuild) as a negative cash flow in that year.
- Read the Net Present Value on the result card. Then compare it to the Investment Decision line, which recommends Accept for NPV ≥ 0 and Reject otherwise.
- Stress-test: nudge the discount rate up by 2%–3% to see how sensitive the result is. A project that only clears the bar at your exact guess is a fragile bet.
The card also shows the present value of all inflows, the undiscounted total cash flow, and the NPV-based return on your initial outlay.
The NPV Formula
Net Present Value discounts every cash flow to its value today and sums them:
NPV = Σ CFₜ / (1 + r)ᵗ for t = 0, 1, 2, … n
Where:
- CFₜ is the net cash flow in period t.
- r is the annual discount rate (required return).
- t = 0 is today, so the initial investment is already at present value and needs no discounting.
- Each later cash flow is divided by (1 + r) raised to the number of years it sits in the future.
Worked example: invest $100,000 today, then receive $30,000, $40,000, $50,000, $40,000 and $30,000 over five years at a 10% discount rate. The discounted inflows total about $143,844, so NPV = −$100,000 + $143,844 = $43,844. The project clears the 10% hurdle by roughly $43,844 of today's dollars.
If the discount rate is 0%, every discount factor is 1, so NPV is just the undiscounted sum of cash flows — useful as a sanity check that you have entered the signs correctly. If the rate drops to −100%, the denominator (1 + r) becomes zero and the formula breaks, which is why the calculator rejects such a value.
How to Choose the Discount Rate
The discount rate is the return you demand for tying up money in this risk. Too high and you reject perfectly good projects; too low and you fund value-destroying ones.
- For a corporation, the weighted average cost of capital (WACC) is the usual starting rate.
- For a personal investment, use the return you could reliably get from a comparable alternative — a broad stock-market index around 7% after inflation is a common benchmark.
- Riskier projects deserve a higher rate. A startup bet might use 20%+ while a stable real-estate cash flow might use 6%–8%.
Because the result swings with this one input, run the calculator at a low, middle, and high rate rather than trusting a single number.
Examples
Example 1 — A profitable expansion. A small business spends $100,000 on equipment and forecasts cash inflows of $30,000, $40,000, $50,000, $40,000 and $30,000. At a 10% discount rate the NPV is about $43,844, and the tool recommends Accept. Even though the undiscounted profit is $90,000, discounting shaves it down to $43,844 — and that trimmed figure is what the project actually adds in today's money.
Example 2 — The zero-rate sanity check. At a 0% discount rate, investing $50,000 for three years of $20,000 inflows gives NPV = −$50,000 + $60,000 = $10,000, exactly equal to the undiscounted total. If your calculator's NPV at 0% does not match the simple sum, a cash-flow sign is entered wrong.
Example 3 — A value-destroying deal. A $50,000 investment returning only $8,000 a year for five years, discounted at 12%, has an NPV near −$21,162. The nominal $10,000 total profit looks fine on paper, but after discounting the project destroys value — the tool flags Reject.
Example 4 — A large opportunity. A $1,000,000 outlay that returns $2,000,000 in year one, then $500k, $500k, $300k and $200k, at an 8% rate, nets an NPV of about $2,034,063 — a strongly attractive project.
FAQ
What is a good NPV?
Any NPV above zero means the project is expected to earn more than your discount rate and should be accepted, all else equal. A positive NPV of, say, $43,844 means the deal beats your required return by that amount in today's dollars. The higher the positive NPV, the more value is created.
What is the difference between NPV and IRR?
NPV gives you a dollar amount of expected value at your chosen discount rate. The Internal Rate of Return (IRR) is the discount rate that would make NPV equal to zero — a percentage you can compare against your hurdle rate. NPV is generally preferred for choosing between projects because it measures absolute dollars of value; IRR is a useful companion.
Should I use a positive or negative number for the initial investment?
Enter the initial outlay as a negative number (for example, -100000) because it is money leaving your pocket today. Later inflows are positive. The calculator treats the year-0 cash flow at full present value and discounts only years one through five.
What discount rate should I use?
Use the return you could earn on the next-best alternative of similar risk. Companies often use their weighted average cost of capital (WACC); individuals might use 6%–10% as a baseline and raise it for riskier bets. Always test a range of rates, because NPV is highly sensitive to this single input.
Does a zero NPV mean I should reject the project?
No. A zero NPV means the project earns exactly your required rate of return — it neither creates nor destroys value. In practice you may still accept it for strategic reasons (market entry, keeping a team busy), but on pure financial grounds it is a wash.
Can NPV be negative — and what does it mean?
Yes. A negative NPV means the discounted inflows do not cover the upfront cost at your required return. For example, a $50,000 outlay returning $8,000 a year for five years at 12% has an NPV near −$21,162, signaling the project would destroy value and should be rejected.
Is this the same as the NPV function in Excel?
Excel's =NPV(rate, values) discounts the first listed value as if it occurs one period from today, which is a common source of error. This calculator keeps your year-0 outlay undiscounted and discounts only future cash flows, matching the textbook DCF definition — so enter today's investment separately and let the formula handle years one and beyond.
Disclaimer
This NPV calculator is provided for informational purposes only and does not constitute financial, investment, tax, or accounting advice. Results depend entirely on the cash-flow estimates and discount rate you enter, which are your own projections. Actual outcomes vary with risk, timing, inflation, and market conditions. Always consult a qualified financial or accounting professional before committing capital to any project.