What is Net Present Value (NPV)?

Net Present Value (NPV) = sum of all future cash flows discounted to today minus the initial investment. NPV = −Initial Investment + Σ [CFt / (1 + r)^t]. If NPV ≥ 0, the investment returns at least the required rate (discount rate) and should be accepted. If NPV < 0, it destroys value at that discount rate. Example: invest $50,000, receive $15,000–$25,000/year for 5 years at 10% discount rate → NPV = +$12,418 → accept.

What discount rate should I use for NPV?

The discount rate should reflect the cost of capital or minimum required return. Common choices: (1) WACC (weighted average cost of capital) for corporate projects — typically 8–15%; (2) Your required return on investment for personal decisions; (3) Risk-free rate (e.g., 10-year Treasury yield ~4.5% in 2026) for low-risk cash flows; (4) Risk-adjusted rate: add a risk premium of 3–8% for higher-risk projects. A higher discount rate makes future cash flows worth less, resulting in lower NPV. When in doubt, model NPV at multiple rates (sensitivity analysis).

What is the Profitability Index (PI)?

Profitability Index (PI) = Total PV of Cash Flows / Initial Investment. PI > 1 means the project adds value (equivalent to NPV > 0). PI = 1.25 means every $1 invested returns $1.25 in present value. PI is useful when comparing projects of different sizes: prefer the project with the highest PI per dollar invested. Example: Project A costs $50,000, NPV = $10,000, PI = 1.20. Project B costs $100,000, NPV = $15,000, PI = 1.15. Project A is more capital-efficient despite lower absolute NPV.

What is IRR and how does it relate to NPV?

Internal Rate of Return (IRR) is the discount rate that makes NPV exactly zero — the break-even rate of return. Accept if IRR ≥ your required return (hurdle rate). Example: IRR = 18%, hurdle rate = 10% → accept. IRR and NPV agree on accept/reject for simple projects with conventional cash flows (one sign change). They can disagree for: mutually exclusive projects (use NPV), non-conventional cash flows (multiple IRRs possible), or different project scales. NPV is theoretically superior; IRR is easier to communicate to non-finance stakeholders.

How do I enter cash flows for an NPV calculation?

Enter one cash flow per line (or comma-separated), starting with Year 1 cash flow — NOT Year 0. The initial investment is entered separately (as a positive number representing the outflow). Positive values = inflows (revenue, savings). Negative values = additional outflows in that year. Example: $50,000 investment, 5 years of cash flows: 15000 / 18000 / 20000 / 22000 / 25000. If Year 3 requires a $5,000 maintenance outflow: enter -5000 for Year 3. The calculator discounts each cash flow by (1+r)^year.

What is the difference between NPV and ROI?

ROI = (Total Return − Initial Investment) / Initial Investment — does not account for time value of money. A project returning $100,000 on a $50,000 investment over 10 years has ROI = 100%, but its NPV could be negative if the discount rate is high. NPV accounts for when cash flows arrive: $10,000 today is worth more than $10,000 in 5 years. Use NPV (or IRR) for capital budgeting decisions. Use ROI for quick back-of-napkin comparisons when timing differences are small. NPV > 0 and positive ROI are not equivalent.

Can NPV be negative and still be a good investment?

An NPV < 0 at a given discount rate means the project does not meet that required return — it is not financially justified at that cost of capital. However, NPV is sensitive to the discount rate: re-run at a lower rate. Also, NPV ignores strategic value (market entry, optionality, competitive positioning) and non-financial benefits. A project with NPV = −$5,000 at 12% might have positive NPV at 8%. If your discount rate is too conservative, good projects appear negative. Always check: what discount rate makes NPV = 0? (That is the IRR.) If IRR exceeds your actual cost of capital, reconsider the discount rate assumption.

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NPV Calculator

NPV = −Initial Investment + Σ [CFt / (1 + r)^t]. Accept if NPV ≥ 0 (project returns at least the discount rate). Example: $50,000 investment, $15K–$25K cash flows for 5 years at 10% discount rate → NPV = +$12,418 → accept. IRR is the discount rate making NPV = 0. Profitability Index = Total PV / Investment; PI > 1 means accept. Higher discount rate = lower NPV.

Calculate net present value (NPV) of an investment or project. Enter initial investment, discount rate (cost of capital), and annual cash flows — get NPV, profitability index, IRR estimate, and a year-by-year discounted cash flow table. Accept if NPV ≥ 0.

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Investment Details

Initial Investment ($)

Discount Rate (%) — cost of capital or required return

Annual Cash Flows ($) — one per line, Year 1 first

5 year(s) entered

Results

Net Present Value (NPV)

$24,088.02

ACCEPT — project adds value

Total PV of Cash Flows

$74,088.02

Profitability Index

1.482

Total Undiscounted CF

$100,000.00

IRR (estimated)

25.86%

Year-by-Year Discounted Cash Flow

Year	Cash Flow	Present Value	Cumulative NPV
Year 0	-$50,000.00	-$50,000.00	-$50,000.00
Year 1	$15,000.00	$13,636.36	-$36,363.64
Year 2	$18,000.00	$14,876.03	-$21,487.60
Year 3	$20,000.00	$15,026.30	-$6,461.31
Year 4	$22,000.00	$15,026.30	$8,564.99
Year 5	$25,000.00	$15,523.03	$24,088.02

Formula: NPV = −Initial Investment + Σ [CFt / (1 + r)^t]. Accept if NPV ≥ 0 (project returns more than the cost of capital). Profitability Index = Total PV / Initial Investment; PI > 1 means accept. IRR is the discount rate that makes NPV = 0.

How to Use

1
Enter initial investment
Type the upfront cost of the project or investment (Year 0 cash outflow). This is a positive number representing how much you spend today.
2
Set the discount rate
Enter your cost of capital or required return (typically 8–15% for corporate projects). This is the minimum return the project must earn to be worthwhile.
3
Enter annual cash flows
Type each year's expected cash inflow on a new line, starting with Year 1. Negative values are allowed for years with additional costs.
4
Read the NPV decision
Green NPV ≥ 0 means accept — the project adds value. Red NPV < 0 means reject. Check the profitability index (PI > 1 = accept) and estimated IRR vs. your hurdle rate.
5
Review the DCF table
The year-by-year table shows each cash flow's discounted present value and cumulative NPV. The year when cumulative NPV crosses zero is the discounted payback period.

Frequently Asked Questions

What is Net Present Value (NPV)?: Net Present Value (NPV) = sum of all future cash flows discounted to today minus the initial investment. NPV = −Initial Investment + Σ [CFt / (1 + r)^t]. If NPV ≥ 0, the investment returns at least the required rate (discount rate) and should be accepted. If NPV < 0, it destroys value at that discount rate. Example: invest $50,000, receive $15,000–$25,000/year for 5 years at 10% discount rate → NPV = +$12,418 → accept.
What discount rate should I use for NPV?: The discount rate should reflect the cost of capital or minimum required return. Common choices: (1) WACC (weighted average cost of capital) for corporate projects — typically 8–15%; (2) Your required return on investment for personal decisions; (3) Risk-free rate (e.g., 10-year Treasury yield ~4.5% in 2026) for low-risk cash flows; (4) Risk-adjusted rate: add a risk premium of 3–8% for higher-risk projects. A higher discount rate makes future cash flows worth less, resulting in lower NPV. When in doubt, model NPV at multiple rates (sensitivity analysis).
What is the Profitability Index (PI)?: Profitability Index (PI) = Total PV of Cash Flows / Initial Investment. PI > 1 means the project adds value (equivalent to NPV > 0). PI = 1.25 means every $1 invested returns $1.25 in present value. PI is useful when comparing projects of different sizes: prefer the project with the highest PI per dollar invested. Example: Project A costs $50,000, NPV = $10,000, PI = 1.20. Project B costs $100,000, NPV = $15,000, PI = 1.15. Project A is more capital-efficient despite lower absolute NPV.
What is IRR and how does it relate to NPV?: Internal Rate of Return (IRR) is the discount rate that makes NPV exactly zero — the break-even rate of return. Accept if IRR ≥ your required return (hurdle rate). Example: IRR = 18%, hurdle rate = 10% → accept. IRR and NPV agree on accept/reject for simple projects with conventional cash flows (one sign change). They can disagree for: mutually exclusive projects (use NPV), non-conventional cash flows (multiple IRRs possible), or different project scales. NPV is theoretically superior; IRR is easier to communicate to non-finance stakeholders.
How do I enter cash flows for an NPV calculation?: Enter one cash flow per line (or comma-separated), starting with Year 1 cash flow — NOT Year 0. The initial investment is entered separately (as a positive number representing the outflow). Positive values = inflows (revenue, savings). Negative values = additional outflows in that year. Example: $50,000 investment, 5 years of cash flows: 15000 / 18000 / 20000 / 22000 / 25000. If Year 3 requires a $5,000 maintenance outflow: enter -5000 for Year 3. The calculator discounts each cash flow by (1+r)^year.
What is the difference between NPV and ROI?: ROI = (Total Return − Initial Investment) / Initial Investment — does not account for time value of money. A project returning $100,000 on a $50,000 investment over 10 years has ROI = 100%, but its NPV could be negative if the discount rate is high. NPV accounts for when cash flows arrive: $10,000 today is worth more than $10,000 in 5 years. Use NPV (or IRR) for capital budgeting decisions. Use ROI for quick back-of-napkin comparisons when timing differences are small. NPV > 0 and positive ROI are not equivalent.
Can NPV be negative and still be a good investment?: An NPV < 0 at a given discount rate means the project does not meet that required return — it is not financially justified at that cost of capital. However, NPV is sensitive to the discount rate: re-run at a lower rate. Also, NPV ignores strategic value (market entry, optionality, competitive positioning) and non-financial benefits. A project with NPV = −$5,000 at 12% might have positive NPV at 8%. If your discount rate is too conservative, good projects appear negative. Always check: what discount rate makes NPV = 0? (That is the IRR.) If IRR exceeds your actual cost of capital, reconsider the discount rate assumption.