NPV Calculator

What the NPV calculator does

The NPV calculator tells you whether a project is worth more than it costs. It converts the cash a project is expected to generate in future years into today's terms and compares the total with the money you invest up front. If the discounted future cash is worth more than the investment, the net present value is positive and the project adds value; if it is worth less, the NPV is negative and the project falls short of the return you demand.

Finance teams, business owners, and investors use NPV to choose between competing uses of money, whether a new machine, a marketing campaign, a property, or a share of a business, because it values every option in today's money.

Why future money is worth less

A dollar today is worth more than a dollar promised in five years. You could invest today's dollar and earn a return, inflation erodes what money can buy over time, and a future payment might arrive late, shrink, or never come.

NPV handles all three with a discount rate, the annual percentage that captures how much you value money now versus later. Each future cash flow is divided by one plus that rate, compounded for the number of years until it arrives, so the further away a payment is, the more its present value shrinks.

The formula

NPV = the sum of each year's cash flow ÷ (1 + r) raised to that year's number, minus the initial investment.

Here r is the discount rate expressed as a decimal. The tool discounts each year's cash flow, adds them to get the present value of all inflows, and subtracts the up-front investment. It reports the net present value, the present value of the inflows, and a profitability index.

How to use the calculator

1. Enter the initial investment, the cash you must commit at the start.
2. Enter the annual cash flow you expect the project to return each year.
3. Enter the discount rate that reflects your required return.
4. Enter the number of years the project runs.

The chart compares the investment with the discounted inflows.

This version assumes a level annual cash flow, a reasonable starting point for a first pass. Real projects often have uneven flows, but a steady figure shows whether an idea deserves deeper analysis.

Reading the result

A positive NPV means the project is expected to clear your required return, so accepting it should increase value. A negative NPV means the inflows do not justify the investment at your rate, and the project should usually be rejected or reworked. An NPV near zero means the project earns almost exactly your required return.

The profitability index divides the present value of the inflows by the investment, so it measures value created per unit of money committed. When two projects both have positive NPVs and your capital is limited, the one with the higher index gives more value for each unit invested.

The discount rate

The discount rate shapes the answer more than any other input. Raise it and future cash flows are discounted harder, pulling NPV down; lower it and the same flows look more valuable. Because it reflects a judgement about required return and risk, test it.

Run the calculation at a conservative high rate, a central estimate, and an optimistic low rate. If the project stays positive across all three, the decision holds up. If it flips within a plausible range, the outcome depends on the assumption, and you need to decide which rate reflects the risk.

Common mistakes

• Choosing a discount rate too casually. The rate should match the project's risk; a low rate on a risky venture flatters the result.
• Getting the project length wrong. If a project keeps generating cash after the years you enter, the model understates its value; if flows dry up sooner, it overstates it.
• Confusing cash flow with profit. NPV works on cash, not accounting profit, and non-cash items and timing differences can make the two diverge.
• Discounting the initial investment. The outlay happens now, so only future flows are discounted.

Use the calculator to screen ideas, compare options on equal terms, and see how much a decision depends on the discount rate, alongside your judgement about how reliable the cash flow estimates are.

This article is general information only and is not financial advice.

About This NPV Calculator

Use this NPV calculator to get an instant estimate based on the figures you enter. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.