NPV (Net Present Value) Calculator
Calculate the net present value of an investment by discounting future cash flows at your cost of capital. Universal corporate-finance formula used in capital budgeting, project appraisal, and DCF valuation.
Net present value
£1,978.13
- PV of cash inflows
- £11,978.13
- Initial investment
- £10,000.00
- Total undiscounted inflows
- £15,000.00
- Profitability index
- 1.2
Accept — NPV is positive at this discount rate. NPV is the present value of every future cash inflow minus the upfront cost — cash flows are discounted at the required rate of return because money received later is worth less than money in hand today. A positive NPV means the investment is expected to create value above the cost of capital; a negative NPV means it destroys value.
How to use this calculator
Enter the upfront cost of the project as the initial investment, the cash flow you expect to receive each year, the discount rate (your cost of capital or required rate of return), and how many years the project will run. The calculator returns the net present value, the present value of the inflows alone, the total undiscounted inflows, the profitability index, and a simple accept/reject signal. Use the same currency for both inputs — the result is in that currency.
How the calculation works
NPV discounts every future cash flow back to today and subtracts the upfront cost. The discount factor for year t is 1 / (1 + r)^t, where r is the discount rate as a decimal. With a constant annual cash flow, the calculator uses the ordinary annuity present-value formula: NPV = −C0 + CF × (1 − (1 + r)^(−n)) / r. When r = 0, this collapses to NPV = −C0 + CF × n. Positive NPV means the project earns more than the discount rate; negative NPV means it earns less.
Worked example
A factory upgrade costs $10,000 today and is expected to save $3,000 a year for 5 years. At an 8% cost of capital, the present value of the savings is 3,000 × (1 − 1.08^(−5)) / 0.08 = $11,978.13. NPV = 11,978.13 − 10,000 = $1,978.13. The project clears the hurdle rate, so accept it. If the cost of capital rose to 15%, the PV of savings would fall to $10,056.50 and NPV to $56.50 — barely breakeven.
Frequently asked questions
What does a positive NPV mean?
A positive NPV means the present value of the project's future cash inflows exceeds the initial investment when discounted at your cost of capital. In plain English, the project is expected to create value beyond what you could earn by putting the same money in the next-best alternative of equal risk. The standard capital-budgeting rule is to accept any independent project with NPV > 0, and when comparing mutually exclusive projects, pick the one with the highest NPV.
How do I choose the discount rate?
The discount rate should reflect the opportunity cost of capital — the return you could earn on an investment of equivalent risk. For a public company this is usually the weighted average cost of capital (WACC), typically 8–12% for stable businesses. For a private project or personal investment, use your required rate of return: maybe 10–15% for a small business, 6–8% for a defensive real-estate hold, 4–5% for a Treasury-grade cash flow. The discount rate is the single biggest driver of NPV — a 2-point change can flip the decision.
What is the difference between NPV and IRR?
NPV gives you a dollar (or pound) figure — how much value the project creates at your assumed cost of capital. IRR gives you a rate — the discount rate at which NPV equals zero. NPV is the better decision tool because it is additive (you can sum NPVs across projects) and unambiguous when cash flows change sign more than once. IRR is easier to communicate but can give misleading answers for non-conventional cash flows or when comparing projects of different size and duration.
What is the profitability index?
Profitability index (PI) is the present value of future cash inflows divided by the initial investment. PI > 1 corresponds to NPV > 0 and means the project earns more than its hurdle rate; PI < 1 means it earns less. PI is useful when you are capital-rationed — you cannot fund every NPV-positive project, so you pick the projects with the highest PI to maximise NPV per dollar invested. Think of it as "value created per dollar spent".
Does this calculator handle uneven cash flows?
No — this calculator assumes a constant annual cash flow for n years, which is the most common textbook and back-of-envelope setup. Real projects often have ramp-up periods, terminal values, and lumpy flows. If your cash flows vary year-to-year, lay them out in a spreadsheet, compute the discount factor 1 / (1 + r)^t for each year, multiply, and sum. The intuition and decision rule are unchanged; only the arithmetic gets longer.
Why is NPV so sensitive to the discount rate?
Because the discount factor falls geometrically with time — at 10%, a dollar received in year 10 is worth only 39 cents today; at 15%, just 25 cents. Far-out cash flows get crushed by higher discount rates, so projects with most of their value in the back years (think infrastructure, R&D, oil fields) swing dramatically when the rate changes. Always run NPV at two or three discount rates to see how robust the decision is.