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NPV Calculator

Calculate NPV (Net Present Value) for investment decisions. Enter initial cost, discount rate, and cash flows to evaluate project profitability and ROI.

Calculate NPV

Initial Investment ($)

The upfront cost of the investment

Discount Rate (%)

Also known as required rate of return or WACC

Projected Cash Flows ($)
Year 1
Year 2
Year 3
Year 4
Year 5

Investment Analysis

$28,784
Net Present Value (NPV)
✓ Accept Investment
This investment is expected to create value
Initial Investment$100,000
Total Present Value$128,784
ROI28.78%
Payback Period2.88 years

Cash Flow Analysis

Year 1
CF: $30,000PV: $27,273
Year 2
CF: $35,000PV: $28,926
Year 3
CF: $40,000PV: $30,053
Year 4
CF: $35,000PV: $23,905
Year 5
CF: $30,000PV: $18,628

Related Calculators

NPV Decision Rules

NPV > 0
Accept

Project creates value

  • • Returns exceed required rate
  • • Increases shareholder wealth
  • • Recommended investment
NPV = 0
Neutral

Break-even point

  • • Meets required rate exactly
  • • No value added or lost
  • • Consider other factors
NPV < 0
Reject

Project destroys value

  • • Returns below required rate
  • • Decreases shareholder wealth
  • • Avoid this investment

How to Calculate NPV

NPV Formula

NPV = Σ [CFt / (1 + r)^t] - Initial Investment

Where:

• CFt = Cash flow in period t

• r = Discount rate (required rate of return)

• t = Time period (usually years)

• Σ = Sum of all periods

Calculation Steps:

  1. 1
    Identify all cash flows
    List initial investment and projected future cash flows for each period
  2. 2
    Determine discount rate
    Use WACC, required return, or opportunity cost as discount rate
  3. 3
    Calculate present value
    Discount each future cash flow to present value using the formula
  4. 4
    Subtract initial investment
    Sum all present values and subtract the initial investment to get NPV

Common Discount Rates by Scenario

💼 Corporate Projects
8-12%

Weighted Average Cost of Capital (WACC)

  • • Stable, established companies
  • • Low to moderate risk
  • • Investment-grade credit
🚀 Startup Ventures
15-25%

High risk, high reward

  • • Early-stage companies
  • • Significant uncertainty
  • • Venture capital expectations
🏠 Real Estate
6-10%

Property investment returns

  • • Rental income properties
  • • Moderate risk level
  • • Tangible asset backing
📈 Stock Market
7-10%

Historical average returns

  • • S&P 500 long-term average ~10%
  • • Diversified portfolio
  • • Personal opportunity cost

Important Considerations

⚠️ Investment Disclaimer

This calculator provides estimates for educational purposes. Consult financial advisors before making investment decisions.

📊 Accuracy of Projections

Cash flow estimates affect NPV significantly

  • • Use conservative estimates
  • • Run sensitivity analysis
  • • Consider best/worst scenarios
⏰ Time Value of Money

Money today is worth more than tomorrow

  • • Inflation erodes purchasing power
  • • Opportunity cost of capital
  • • Risk increases over time
🎯 Comparing Projects

Choose highest NPV when mutually exclusive

  • • NPV > IRR for decision-making
  • • Consider project scale differences
  • • Account for reinvestment assumptions
⚖️ Limitations of NPV

NPV doesn't capture everything

  • • Ignores non-financial factors
  • • Requires accurate discount rate
  • • Doesn't show timing of returns

Example Cases

Case 1: Equipment Purchase Decision

Investment Details:
Initial Cost: $100,000
Discount Rate: 10%
Project Life: 5 years
Annual Cash Flows:
Year 1: $30,000
Year 2: $35,000
Year 3: $40,000
Year 4-5: $35,000, $30,000
Results:
Total PV: $129,277
NPV: $29,277
ROI: 29.28%
Decision:
✓ Accept
Payback: 3.2 years

Analysis: Positive NPV of $29,277 indicates this equipment purchase will create value. The investment pays for itself in 3.2 years and provides a 29.28% return, exceeding the 10% required rate.

Case 2: Software Development Project

Investment Details:
Initial Cost: $200,000
Discount Rate: 15%
Project Life: 4 years
Annual Cash Flows:
Year 1: $50,000
Year 2: $60,000
Year 3: $70,000
Year 4: $80,000
Results:
Total PV: $195,458
NPV: -$4,542
ROI: -2.27%
Decision:
✗ Reject
Returns below required 15%

Analysis: Negative NPV of -$4,542 means this project doesn't meet the 15% required return. While it generates positive cash flows, the returns are insufficient given the higher risk level and opportunity cost.

Frequently Asked Questions

What is NPV (Net Present Value)?
NPV is a financial metric that calculates the present value of all future cash flows from an investment, minus the initial investment cost. It accounts for the time value of money using a discount rate. A positive NPV indicates the investment is expected to generate value, while a negative NPV suggests it would destroy value.
How do you calculate NPV?
NPV is calculated using the formula: NPV = Σ [CFt / (1 + r)^t] - Initial Investment, where CFt is the cash flow in period t, r is the discount rate, and t is the time period. You discount each future cash flow to its present value, sum them up, and subtract the initial investment.
What is a good NPV value?
Any positive NPV is generally good, as it indicates the investment will create value. The higher the NPV, the better. When comparing multiple projects, choose the one with the highest NPV. An NPV of zero means the investment will exactly meet the required rate of return, while negative NPV means it falls short.
What discount rate should I use for NPV?
The discount rate typically represents the required rate of return or cost of capital (WACC). For corporate projects, use the company's weighted average cost of capital (8-12% is common). For personal investments, use your opportunity cost or expected market return. Higher risk projects should use higher discount rates (15-20% or more).
What's the difference between NPV and IRR?
NPV gives you the dollar value an investment adds or subtracts, while IRR (Internal Rate of Return) gives you the percentage return. NPV uses a predetermined discount rate, whereas IRR calculates the rate that makes NPV equal to zero. NPV is generally more reliable for decision-making, especially when comparing projects of different sizes.
Can NPV be used for any type of investment?
Yes, NPV can evaluate any investment with predictable cash flows: business projects, real estate, equipment purchases, stocks, bonds, or educational investments. However, it works best when you can reasonably estimate future cash flows and the appropriate discount rate. For highly uncertain or strategic investments, NPV should be combined with other analyses.