ReturnLab

NPV Calculator

Enter an initial investment and a stream of future cash flows — see whether the project clears your required rate of return.

Discount rate

Cash flows (period 0 first, comma-separated)

First value is the initial investment — usually negative

Net present value

$3,309

Positive NPV — expected to create value

What you entered

Discount rate: 10%Cash flows: -$10,000, $3,000, $4,200, $5,100, $4,800

1
Period 0 (initial outlay, not discounted)
$-10,000.00= $-10,000.00
2
Discount the period 1 cash flow
$3,000.00 ÷ (1 + 10%)^1= $2,727.27
3
Discount the period 2 cash flow
$4,200.00 ÷ (1 + 10%)^2= $3,471.07
4
Discount the period 3 cash flow
$5,100.00 ÷ (1 + 10%)^3= $3,831.71
5
Discount the period 4 cash flow
$4,800.00 ÷ (1 + 10%)^4= $3,278.46
6
Sum all discounted cash flows
$-10,000.00 + $2,727.27 + $3,471.07 + $3,831.71 + $3,278.46= $3,308.52

Result

Net present value: $3,309

Discounting every future cash flow back to today at 10% gives a net present value of $3,309 — the project is expected to earn more than the discount rate, creating value.

Net present value of a $10,000 project at two discount rates

Every row is the same shape of project: $10,000 spent up front, then five equal annual inflows of the amount shown. NPV discounts each inflow back to today and subtracts the outlay; the IRR column is the rate at which NPV would be exactly zero.

Annual inflow	Total received	NPV at 8%	NPV at 12%	IRR
$2,000	$10,000	-$2,015	-$2,790	0.00%
$2,500	$12,500	-$18	-$988	7.93%
$3,000	$15,000	$1,978	$814	15.24%
$3,500	$17,500	$3,974	$2,617	22.11%
$4,000	$20,000	$5,971	$4,419	28.65%

The first row is the clearest lesson available in finance: getting exactly your money back over five years is a 0% return, and against any positive discount rate it is a loss. The second row is close to break-even at 8% and clearly negative at 12%, which shows how much the discount rate decides the answer - the same project is worth doing or not depending on what you assume your capital costs. A positive NPV means the project beats your discount rate; that is the decision rule. This model assumes evenly spaced annual flows with no terminal value, and ignores tax and risk differences between projects.

Why discount future cash flows at all

A dollar received in year 3 is worth less than a dollar today, because you could have invested today's dollar and grown it in the meantime. NPV puts every cash flow on equal footing by discounting it back to the present.

Reading the result

A positive NPV means the project's cash flows, discounted at your chosen rate, are worth more than the initial investment — value is created. A negative NPV means the opposite.

NPV in real business decisions

Should we buy this machine for $500,000 that saves $120,000/year for 6 years? At a 10% discount rate, the NPV of six $120,000 payments is $522,536 — minus the $500,000 cost, NPV = +$22,536. Positive NPV means the machine earns more than the 10% minimum return. If your company has multiple projects competing for capital, rank them by NPV and fund from the top down.

Frequently asked questions

What does NPV tell you?

NPV tells you whether an investment creates or destroys value relative to your required rate of return. Positive NPV = the project earns more than your discount rate, so it's worth doing. Negative NPV = you'd be better off investing the money elsewhere at the discount rate. NPV of zero = the project exactly meets your required return.

How do you calculate NPV?

NPV = −Initial Investment + CF₁/(1+r)¹ + CF₂/(1+r)² + ... + CFₙ/(1+r)ⁿ. Each future cash flow (CF) is divided by (1+r) raised to the power of its year. Example: invest $100K, receive $40K/year for 3 years at 8% → NPV = −100K + 40K/1.08 + 40K/1.08² + 40K/1.08³ = $3,083.

What discount rate should I use for NPV?

Use your cost of capital or the return you could earn elsewhere at similar risk. For businesses, use WACC (typically 8-12%). For personal investments, use your expected alternative return (7% for stocks, 4-5% for bonds). A higher discount rate makes NPV lower — it's a stricter hurdle.