The NPV (Net Present Value) calculator is the cornerstone of capital budgeting and investment analysis. It discounts all future cash flows back to today's dollars to tell you whether a project or investment will create or destroy value. Finance professionals, project managers, and investors rely on NPV to make go/no-go decisions.
How to Use This Calculator
- Enter the initial investment (as a negative cash flow at year 0).
- Enter expected cash inflows for each future period (year 1, year 2, etc.).
- Enter the discount rate (your required rate of return or cost of capital).
- Click Calculate to see NPV, present value of future cash flows, and a discounted cash flow table.
What This Calculator Measures
- NPV — The sum of all future cash flows discounted to present value, minus the initial investment.
- Discount rate — The minimum acceptable return, often the weighted average cost of capital (WACC).
- Present value — What a future cash flow is worth in today's money.
- Discounted cash flow (DCF) — Each future cash flow divided by (1 + r)^t, where t is the time period.
Formula or Logic
NPV = Σ [Cash Flow_t ÷ (1 + r)^t] − Initial Investment
Where r = discount rate and t = time period in years.
A positive NPV means the investment returns more than the required rate of return and should be accepted.
Example Calculations
Example 1: Initial investment = −$50,000. Cash flows: Year 1 = $20,000, Year 2 = $25,000, Year 3 = $20,000. Discount rate = 10%. NPV ≈ $3,817 (positive → accept the project).
Example 2: Same flows at a 15% discount rate → NPV ≈ −$1,450 (negative → reject at this hurdle rate).
Understanding Your Results
NPV > 0: The investment adds value above your required return — generally a green light. NPV = 0: Exactly meets your required return. NPV < 0: Destroys value at the chosen discount rate — generally reject.
Common Mistakes to Avoid
- Using an incorrect or too-low discount rate that makes bad projects look good.
- Not including all cash outflows (maintenance, taxes, working capital changes).
- Forgetting terminal value for projects with value beyond the explicit forecast period.
- Treating NPV in isolation — always compare with IRR and payback period for a complete picture.