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NPV Calculator — Net Present Value, IRR & Payback Period
Enter your initial investment, annual cash flows, and discount rate. Get NPV, IRR, payback period, and profitability index — with a clear invest-or-reject signal. Free. Pairs with the DCF Calculator for full equity valuation.
How to Use This NPV Calculator
Enter the initial investment
The upfront cost of the project in dollars — capital expenditure, purchase price, or total deployment. Click "Load Example" to start with a pre-filled $100,000 scenario.
Add annual cash flows
Enter expected net cash flows for each year — positive means cash in, negative means cash out. You can add up to 10 periods. Use after-tax figures for the most accurate result.
Set your discount rate
This is your required rate of return. For corporate projects, use WACC. For equity, use cost of equity. Default is 10% — a common hurdle rate for moderate-risk investments. Calculate yours with the WACC calculator.
Read the invest/reject signal
Positive NPV = invest. The project earns above your hurdle rate. Negative NPV = reject. Check IRR against your required return and payback period against your liquidity needs.
What is Net Present Value?
Net present value answers a simple question: if you invest cash today and receive cash flows back over time, are those future flows worth more or less than what you paid? A dollar received in year 5 is worth less than a dollar today because of inflation, opportunity cost, and risk. NPV discounts every future cash flow back to today's value using your required return, then subtracts the upfront cost.
The NPV formula is: NPV = Σ [CF_t / (1 + r)^t] − Initial Investment, where CF_t is the cash flow in period t, r is the discount rate, and the sum runs from t = 1 to n. Positive NPV means the investment creates value. Zero means it earns exactly your required return. Negative means you would earn more investing at your discount rate elsewhere. For stock analysis, NPV is the foundation of the DCF calculator and the DCF guide.
NPV vs IRR: Which Should You Use?
Both metrics evaluate investments, but they answer different questions. NPV tells you the dollar value created — "this project adds $71,000 of value." IRR tells you the effective rate of return — "this project earns 29% annually." For most decisions, NPV is more reliable: it scales with the size of the investment and assumes cash flows are reinvested at the discount rate (realistic). IRR assumes reinvestment at the IRR itself (often too optimistic) and can produce multiple values when cash flows change sign more than once.
When choosing between mutually exclusive projects of different sizes, always use NPV — a smaller project with a higher IRR may create less total value than a larger project with a lower IRR. Use IRR as a sanity check and communication tool ("the project earns 25%, which clears our 12% hurdle"), but let NPV drive the capital allocation decision.
Payback Period and Profitability Index
The payback period measures how long until cumulative cash flows recover the initial investment. It ignores time value of money and any cash flows after payback — so a project with a short payback but terrible long-term returns can look deceptively good. Use payback as a liquidity screen (do I need my money back within 3 years?) rather than a profitability measure.
The profitability index (PI) equals (NPV + Investment) / Investment — in other words, how many dollars of present value you get per dollar invested. PI greater than 1 signals value creation; PI less than 1 signals destruction. PI is especially useful when comparing projects of different scales under a constrained capital budget: it ranks projects by value created per dollar deployed, which maximizes total portfolio NPV when you can't fund everything.
Frequently Asked Questions
What is a good NPV?
Any positive NPV is 'good' in absolute terms — the project creates value above your required return. The higher the NPV, the more value created. In practice, compare NPV across competing projects to allocate capital to the highest-value use. A positive NPV of $1 on a $10M project is technically good but may not be worth the execution risk.
What is the NPV formula?
NPV = Σ [CF_t / (1 + r)^t] − Initial Investment. CF_t is the cash flow in year t, r is the discount rate (as a decimal), and you sum across all periods t = 1 to n. Then subtract the upfront investment. Each year's cash flow is discounted by (1+r)^t — the further out a cash flow, the less it's worth today.
How do I choose the right discount rate?
Use your required rate of return given the investment's risk. For corporate capital budgeting, this is WACC. For equity investments, cost of equity via CAPM. A common starting point: 10% for moderate-risk projects, 15–20% for higher-risk, 25%+ for venture-style bets. If you're unsure, use our WACC calculator to derive a defensible rate from first principles.
Can NPV be negative?
Yes — a negative NPV means the investment earns less than your required return. It doesn't mean you lose money in accounting terms, just that you would have done better investing elsewhere at the discount rate. Reject negative-NPV projects when capital is unconstrained and better alternatives exist.
What is IRR and how is it calculated?
IRR (Internal Rate of Return) is the discount rate at which NPV equals zero. There's no closed-form solution, so it's found numerically — this calculator uses a bisection method: bracket the root between two rates, repeatedly bisect until NPV converges to zero (within 0.0001%). Compare IRR to your required return: if IRR > hurdle rate, the project clears the bar.
How does NPV relate to DCF analysis?
DCF (discounted cash flow) analysis IS NPV applied to a business or stock. Instead of project cash flows, you project a company's free cash flows, discount them at WACC, add terminal value, and compare to the current market price. A stock trading below its DCF intrinsic value has a positive NPV — the market is paying less than the present value of the business's future cash flows.