Calculate the Net Present Value (NPV) of an investment from its initial cost, a discount rate, and a series of future cash flows. A positive NPV means the project is expected to add value.
Net Present Value
Net Present Value is the difference between the present value of an investment's future cash inflows and its upfront cost. Because money received later is worth less than money today, each future cash flow is discounted back to the present at a chosen rate: NPV = −Initial + Σ CFₜ ÷ (1 + r)ᵗ. If the NPV is positive, the project is expected to earn more than your required return and adds value; if negative, it destroys value and should be rejected.
NPV is the gold standard of capital budgeting because, unlike payback period, it accounts for the time value of money and the full life of the project. The discount rate represents your cost of capital or required return — a higher rate is more demanding and lowers NPV. This calculator also shows the profitability index (PV of inflows ÷ initial investment); a value above 1.0 signals a worthwhile project.
NPV > 0 means the project earns more than your discount rate requires — it adds value. NPV < 0 means reject.
Use your cost of capital or required return. A higher rate discounts future cash flows more and lowers NPV.
PV of inflows ÷ initial cost. Above 1.0 is good; it's handy for ranking projects when capital is limited.
Net present value discounts every cash flow a project will produce back to today and subtracts what it costs to start. The decision rule is unusually clean: a positive NPV means the project earns more than the discount rate demands and creates value; a negative NPV means the money is better deployed elsewhere. Unlike payback period it counts all cash flows including the distant ones, and unlike IRR it produces an answer in dollars, which makes it additive across projects and immune to the multiple-root problem that afflicts irregular cash flow patterns.
NPV = Σ [ CF_t ÷ (1 + r)^t ] − C₀each year's cash flow is discounted by its own number of yearswhere:
Assumptions: Assumes flows arrive at year end, a single constant discount rate, and forecasts you actually believe. NPV is only as good as the cash flow estimates fed into it — precision in the arithmetic cannot rescue optimism in the inputs.
A project costs $100,000 today and is forecast to return $30,000, $40,000, $45,000 and $35,000 over the next four years. The required return is 9%.
ResultNPV = +$20,733 — the project clears its 9% hurdle
The undiscounted total is $150,000, which would suggest a $50,000 profit; discounting removes $29,267 of that as the cost of waiting. Raise the hurdle to 18% and NPV falls to roughly −$1,400, flipping the decision — which is why the discount rate deserves as much scrutiny as the forecasts.