NPV Calculator
Calculate Net Present Value (NPV) for a series of future cash flows. Enter discount rate and cash flows to evaluate investment profitability.
Reviewed by Sahil, Senior Finance & Tax Editor
Formula
NPV = -C₀ + Σ[Cₜ / (1+r)ᵗ]
NPV discounts future cash flows to present value using the discount rate, then subtracts the initial investment. Positive NPV means the investment creates value.
Worked Examples
Example 1: Project evaluation
Problem:Invest $100K, get $30K,$35K,$40K,$45K,$50K over 5 years at 10%
Solution:PV = 27273+28926+30053+30735+31046 = 148,033. NPV = 148,033-100,000 = $48,033
Result:NPV = $48,033 (Accept)
Frequently Asked Questions
How do I choose the right discount rate to use in an NPV calculation?
The discount rate should reflect the required rate of return for the specific risk level of the cash flows being evaluated — commonly a company's weighted average cost of capital (WACC) for typical corporate projects, or a higher 'hurdle rate' for riskier ventures where investors demand extra compensation for uncertainty. Using too low a discount rate can make marginal or risky projects look artificially attractive.
How does NPV differ from IRR, and when should I use one over the other?
NPV expresses value created in dollar terms at a chosen discount rate, while IRR expresses the discount rate at which NPV would equal exactly zero, as a percentage. NPV is generally preferred for comparing mutually exclusive projects of different sizes, since it directly measures dollar value created, while IRR is useful as a quick percentage benchmark but can produce misleading rankings when project scales or cash flow patterns differ significantly.
Reviewed by Sahil, Senior Finance & Tax Editor · Editorial policy