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Net Present Value (NPV) Calculator

Find the NPV of an investment.

How it is calculated

The tool assumes equal cash flows at the end of each period. The present value of those inflows is PV = CF × (1 − (1 + r)^−n) / r and NPV = PV − initial investment. CF is the cash flow per period, r the discount rate per period, entered as a percentage (type 8 for 8%; the formula then uses 0.08) and n the number of periods. When the rate is 0 it simply uses CF × n. A rate of −100% or below gives no result. The initial outlay is entered as a positive number and is assumed to happen now. A positive NPV means the project earns more than the discount rate, a negative one that it earns less.

Worked example

Invest 10,000 and receive 3,000 at the end of each of 5 years, with an 8% discount rate. Discount factor: (1 − 1.08^−5) / 0.08 ≈ 3.9927. Present value of inflows: 3000 × 3.9927 = $11,978.13. NPV: 11,978.13 − 10,000 = $1,978.13. This project is worth taking at that rate.

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Common mistakes

  • Entering the initial investment as a negative number. The tool subtracts it itself, so a minus sign gives the wrong answer.
  • Mixing periods, such as a yearly discount rate with monthly cash flows. Rate and periods must use the same unit.
  • Using this for uneven cash flows. The tool needs the same amount every period.
  • Choosing the discount rate casually. NPV is very sensitive to it, so test a few rates.

Sources

About this calculator

Net present value (NPV) discounts a series of future cash flows back to today's value and subtracts the initial investment, so that money received later counts for less than money received now: NPV = Σ [CF / (1+r)ᵗ] − Initial Investment, where r is the discount rate (reflecting the cost of capital or required rate of return) and t is the period of each cash flow. For a project with equal periodic cash flows, this simplifies to an annuity present-value calculation.

Corporate finance analysts, investors, and business owners use NPV as the standard test for whether a project or investment is worth pursuing: a positive NPV means the investment is expected to create value above the required rate of return, while a negative NPV means it's expected to destroy value even before accounting for risk.

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Comments (1)

  • Editorial team

    NPV depends heavily on the discount rate, so run more than one. In the 10,000 investment with 3,000 a year for 5 years, the result is 1,978.13 at 8 percent, 56.47 at 15 percent and minus 1,028.16 at 20 percent. The rate where it crosses zero, here a little above 15 percent, is the break-even return. How do you choose a discount rate for your own projects?

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