NPV Calculator

About NPV Calculator

How Does NPV Work?

NPV discounts every future cash flow back to today and then subtracts the upfront cost. The formula is NPV = -C0 + Σ CFt / (1 + r)^t for t = 1 to n, where C0 is the year-0 outflow, CFt is the cash flow in year t, r is the discount rate per period, and n is the project life. Each year's cash flow is divided by a discount factor that grows with time, so distant cash flows count for less. Harvard Business Review's 2014 NPV refresher (still the most cited HBR explainer on the topic) frames the discount rate as the cost of capital you would have to forgo to take this project on. For corporate work that is the WACC; for personal use it is the return on your next-best alternative.

Worked example: A project costs $100,000 upfront and is expected to generate $30,000, $40,000, $35,000, $25,000, and $20,000 in years 1 through 5. The discount rate is 8% (a typical mid-size corporate WACC per NYU Stern data, January 2026). Discounting each year:

• Year 1: $30,000 / 1.08^1 = $30,000 x 0.925926 = $27,777.78
• Year 2: $40,000 / 1.08^2 = $40,000 x 0.857339 = $34,293.55
• Year 3: $35,000 / 1.08^3 = $35,000 x 0.793832 = $27,784.13
• Year 4: $25,000 / 1.08^4 = $25,000 x 0.735030 = $18,375.75
• Year 5: $20,000 / 1.08^5 = $20,000 x 0.680583 = $13,611.66
• Sum of present values: $121,842.87
• NPV = $121,842.87 - $100,000 = $21,842.87

The NPV is positive, so the project beats an 8% required return and adds about $21,843 of value in today's money. The corresponding IRR (the rate that makes NPV zero) is 16.62%. The investor would only reject this if their required return exceeded 16.62%. This is exactly the calculation the tool runs in real time when you adjust the discount-rate slider.

What Is a Good NPV?

Any positive NPV is good, but bigger is better only when projects are equally risky and equally sized. NPV is a dollar figure, so a $10,000 NPV on a $50,000 project is much stronger than a $10,000 NPV on a $5 million project. The first means a 20% premium over the required return; the second means roughly 0.2%. For ranking projects of different sizes, use the ROI calculator or the Profitability Index (NPV / initial investment) alongside NPV.

The discount rate matters more than people think. The same cash flows can produce a wildly different NPV depending on the rate, and the impact grows with project life. Here is the example project above at different discount rates:

Discount Rate	Sum of PVs	NPV	Decision
5%	$131,325	+$31,325	Strong invest
8%	$121,843	+$21,843	Invest
10%	$116,120	+$16,120	Invest
15%	$103,583	+$3,583	Marginal
16.62% (IRR)	$100,000	~$0	Break-even
20%	$93,126	-$6,874	Reject

Moving the rate from 5% to 20% turns the NPV from +$31,325 to -$6,874 on identical cash flows. This is why a sensitivity check across plausible discount rates is more useful than a single point estimate. The UK Treasury's Green Book - the official guide for evaluating public-sector projects - explicitly requires sensitivity analysis on the discount rate for exactly this reason, and uses a Social Time Preference Rate of 3.5% (declining to 3.0% after 30 years) for long-lived projects.

Discount Factor Reference Table

The discount factor for year t at rate r is 1 / (1 + r)^t. Multiply any future cash flow by the factor to get its present value. Below is a reference table for the rates and horizons people use most:

Year	3%	5%	8%	10%	12%
1	0.9709	0.9524	0.9259	0.9091	0.8929
2	0.9426	0.9070	0.8573	0.8264	0.7972
3	0.9151	0.8638	0.7938	0.7513	0.7118
5	0.8626	0.7835	0.6806	0.6209	0.5674
7	0.8131	0.7107	0.5835	0.5132	0.4523
10	0.7441	0.6139	0.4632	0.3855	0.3220

At 12% over 10 years, $1 of future cash is worth 32 cents today. At 3%, the same dollar is worth 74 cents. That gap is why distant cash flows are nearly worthless in high-rate environments and dominate the answer when rates are low. To see the reverse direction (today's money projected forward), use the future value calculator. For a single future amount rather than a stream, the present value calculator is the simpler tool.

NPV vs IRR: Which Is Better?

NPV is the more reliable accept-or-reject rule, but IRR is easier to communicate. Both measure the same thing - whether a project beats the cost of capital - and on a single project with one initial outflow followed by inflows, they always agree. They diverge when:

• Comparing projects of different sizes. IRR is a percentage and ignores scale. A project with a 30% IRR on $10,000 adds less wealth than a 15% IRR on $1 million.
• Non-conventional cash flows. If cash flow signs change more than once (outflow, inflow, outflow), the IRR equation can have multiple real solutions, per the multiple-IRR problem documented in every corporate finance textbook (e.g. Brealey, Myers and Allen's Principles of Corporate Finance). NPV always gives one answer.
• Reinvestment assumption. IRR implicitly assumes intermediate cash flows are reinvested at the IRR itself, which is often unrealistic for high-IRR projects. NPV reinvests at the discount rate, which matches the opportunity cost.

	NPV	IRR
Units	Currency (dollars, pounds)	Percentage
Reinvestment assumption	At the discount rate (opportunity cost)	At the IRR itself
Multiple solutions possible?	No	Yes, with non-conventional flows
Best for	Accept/reject and ranking different-sized projects	Quick communication, comparing similar projects
What it tells you	Wealth added in today's money	Implied return rate

The Corporate Finance Institute's NPV reference puts it bluntly: when NPV and IRR disagree, follow NPV. The same conclusion appears in the CFA curriculum and in most CFO surveys. For shorter projects where you mainly want to know "how fast does this pay back?", pair NPV with the payback period calculator instead of IRR alone - payback handles the timing question NPV intentionally compresses into one number.

Common NPV Mistakes

Small input errors produce large NPV swings because of compounding. The ones that catch out beginners (and a surprising number of MBAs):

• Using accounting profit instead of cash flow. NPV uses cash, not profit. Depreciation is a non-cash expense - subtract it for tax purposes, then add it back to get cash flow. Working-capital changes are also cash, even though they don't hit the income statement.
• Mixing nominal and real terms. If cash flows are in today's purchasing power (real), use a real discount rate. If they're in future dollars (nominal), use a nominal rate. Mixing them under-states or over-states NPV by 20% or more over a 10-year horizon at typical inflation rates.
• Forgetting the terminal value. If the project keeps generating cash after the explicit forecast period, include a terminal value (often book salvage or a perpetuity: CF / (r - g)). Omitting it can flip the decision on long-lived assets.
• Treating the discount rate as certain. A 200 basis point change in the rate can shift NPV by 30% on a 10-year project. Always run NPV at the low, mid, and high end of plausible cost-of-capital estimates - this calculator's slider is built for that.
• Double-counting financing costs. The discount rate already captures the cost of capital. Don't subtract interest payments from the cash flows on top of discounting - that double-counts the financing cost. Use free cash flow to firm, not free cash flow to equity, when discounting at WACC.
• Ignoring opportunity cost. If a project uses an existing asset that could otherwise be sold or rented, include the foregone cash as an opportunity cost. NPV based on incremental cash flows must capture what you give up, not just what you pay out.

Real-World NPV Applications

NPV is the workhorse of corporate capital budgeting. Graham and Harvey's 2001 survey of US CFOs (published in the Journal of Financial Economics) found roughly three-quarters of large US firms regularly use NPV when evaluating capital projects - more than any other discounted-cash-flow criterion. Some concrete uses:

• Equipment purchases: A $250,000 machine projected to save $50,000/year in labour for 7 years at a 10% required return. Sum of PVs = $50,000 x 4.8684 (annuity factor) = $243,420. NPV = -$6,580 (reject) at 10%, but +$29,119 (accept) at 6%.
• Real estate development: Discount the initial land cost, construction outflows, and rental cash flows back to today. A property that produces 5% gross yield with 2% inflation in net operating income has a positive NPV at discount rates up to roughly 7%.
• Government infrastructure: The UK Treasury Green Book uses a 3.5% social time preference rate (3.0% beyond 30 years) for NPV evaluation of public projects, intentionally lower than private-sector rates to capture social benefits.
• Pharmaceutical R&D: A drug with $200M upfront cost, 8 years of $0 cash flow during development, and 15 years of $80M/year sales. At 12% (reflecting clinical-trial failure risk), NPV is roughly +$50M. At 18% it turns negative. This sensitivity is why pharma uses NPV plus risk-adjusted decision trees.

For weighting the cost of capital used as the discount rate, the WACC calculator blends debt and equity costs based on the company's capital structure - exactly the rate corporate finance teams plug into NPV decisions.

Sources

• Harvard Business Review - A Refresher on Net Present Value
• Graham & Harvey - The Theory and Practice of Corporate Finance (2001)
• Corporate Finance Institute - Net Present Value (NPV)
• Corporate Finance Institute - Internal Rate of Return (IRR)
• NYU Stern (Damodaran) - Cost of Capital by Sector
• HM Treasury - The Green Book (Appraisal and Evaluation in Central Government)
• US Treasury - Daily Yield Curve Rates
• Federal Reserve H.15 - Selected Interest Rates

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