NPV Calculator
Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows. You invest today (negative cash flow) and receive cash over time; the discount rate reflects your cost of capital. If NPV is positive, the project adds value. This calculator uses a simple setup: one initial outlay and equal annual inflows for a fixed number of years.
Calculate NPV
How it works
NPV = −Initial + Σ (Cash flow in year t / (1 + r)^t) for t = 1 to n. We treat the initial outlay as a negative and discount each annual inflow by (1 + r)^t. If the inflows are equal, this is equivalent to: NPV = −Initial + Annual × [(1 − (1+r)^(−n)) / r].
Example: Invest $100,000, receive $25,000 per year for 5 years, discount rate 10%. PV of annuity ≈ $94,770. NPV ≈ −$5,230 (negative, so the project does not meet the 10% hurdle in this simplified model).
When to use it
Use NPV to compare projects or decide whether an investment meets your required return. Real projects have uneven cash flows and taxes; this is a streamlined version for learning or quick checks.
Frequently asked questions
- What discount rate should I use? Often the cost of capital or required return (e.g. WACC, hurdle rate). It reflects the opportunity cost of the investment.
- What if NPV is negative? A negative NPV means the project is expected to destroy value at the given discount rate. You would typically reject it.