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NPV Calculator
Use this free NPV calculator to work out the net present value of a project or investment. Enter your discount rate, the upfront cost, and up to eight years of cash flows, and the tool discounts every future payment to today's dollars, subtracts the investment, and shows whether the project creates or destroys value — with a chart of NPV against the discount rate.
The discount rate is your required return — often your cost of capital. A higher rate shrinks the value of future cash.
NPV vs. discount rate
The chart shows how the net present value of this project falls as the discount rate rises. Where the line crosses zero is the project's internal rate of return.
At your chosen rate the NPV is shown on the chart as a dot.
How it works
The net present value (NPV) of a project answers one question: is this investment worth more than it costs, once you allow for the fact that money received in the future is worth less than money in hand today? A dollar next year is worth less than a dollar today because you could invest today's dollar and earn a return on it, and because inflation quietly eats its buying power. NPV discounts every future cash flow back to today's dollars at a chosen discount rate, adds them up, and subtracts the money you must put in at the start.
Each input has a clear job. The initial investment is the cash you spend at the start — buying equipment, paying setup costs, or funding a project before it earns anything. The discount rate is the return you could earn elsewhere at similar risk, or the rate your business pays to borrow. If you can earn 10% on a safe alternative, a project must beat 10% to be worth doing, so 10% is the right rate to test it against. The yearly cash flows are the net cash the project brings in each year — income minus running costs, in that year. Enter up to eight years; leave later years at zero if the project ends sooner.
Here CFₜ is the cash flow in year n and r is the discount rate as a decimal. Each year's cash flow is divided by (1+r) raised to that year, which is what "discounting" means: year 1 cash is divided once, year 2 twice, and so on, so distant cash counts for less. The discounted flows are added to give the present value of all inflows, and the initial investment is subtracted. The result is a single dollar figure that can be compared across projects of any size.
Reading the answer is simple. A positive NPV means the project creates value: after allowing for your required return, it is worth more than it costs, so it is worth doing on financial grounds. A negative NPV means the project destroys value at that discount rate — the same money would do better in the alternative investment, so you should pass, renegotiate the price, or find a cheaper way to run it. An NPV of zero means the project earns exactly your required return, no more and no less; it is a break-even investment. When you must choose between projects, the one with the higher NPV adds more value, provided the projects are of similar scale and risk.
The discount rate is the most sensitive input, and the chart beside the calculator shows why. As the rate rises, every future cash flow is discounted harder and the NPV falls. The rate where the line crosses zero is the internal rate of return (IRR) — the project's own rate of return. If your required rate sits below the IRR, the NPV is positive; if it sits above, the NPV is negative. Try moving the rate up and down and watch the NPV change: projects with cash arriving late are punished much more by a high rate than projects that pay back quickly, which is why two projects with the same total cash can have very different NPVs.
Worked example
A small bakery is considering a second oven that costs $10,000 today. The owner expects the oven to bring in extra net cash of $3,000 in year 1, $4,000 in year 2, $4,000 in year 3, and $3,000 in year 4, after paying for extra ingredients, power, and staff time. Her required return — what she could earn by putting the money elsewhere — is 10% a year. Is the oven worth buying?
Step 1: Discount each year's cash flow. Year 1: $3,000 ÷ 1.10 = $2,727.27. Year 2: $4,000 ÷ 1.10² = $4,000 ÷ 1.21 = $3,305.79. Year 3: $4,000 ÷ 1.10³ = $4,000 ÷ 1.331 = $3,005.26. Year 4: $3,000 ÷ 1.10⁴ = $3,000 ÷ 1.4641 = $2,049.04.
Step 2: Add the discounted flows. $2,727.27 + $3,305.79 + $3,005.26 + $2,049.04 = $11,087.36. That is the present value of everything the oven will earn, in today's dollars. The total undiscounted cash is $14,000, so discounting has trimmed $2,912.64 off the headline figure — the price of waiting for the money.
Step 3: Subtract the initial investment. $11,087.36 − $10,000 = $1,087.36. The NPV is positive, so the oven creates about $1,087 of value after allowing for a 10% return, and the bakery should buy it on these figures. Enter the same numbers in the calculator — $10,000 investment, 10% rate, four flows of 3000, 4000, 4000, 3000 — and it returns exactly NPV $1,087.36, with total inflows of $14,000 and discounted inflows of $11,087.36. If the owner's required return were 15% instead, the NPV would fall to about −$21, and the decision would flip — which is why the rate you choose matters so much.
FAQ
What is NPV in simple terms?
NPV is the value of a project in today's dollars. It takes all the cash a project will bring in, shrinks each future payment to what it is worth today using a discount rate, adds them up, and subtracts the upfront cost. A positive NPV means the project is worth more than it costs.
What discount rate should I use for NPV?
Use your required return: the return you could earn on a similar-risk alternative, or your cost of borrowing. Many small businesses use 8% to 12%. A higher rate makes future cash worth less and makes the NPV smaller, so test a few rates and see whether your decision still holds.
What does a negative NPV mean?
A negative NPV means the project earns less than your required return. The money would do better in the alternative investment, so on financial grounds you should not go ahead unless the price falls, the cash flows improve, or there is a non-financial reason to proceed.
How is NPV different from IRR?
NPV tells you how many dollars of value a project creates at a discount rate you choose. IRR tells you the project's own percentage return — the rate at which its NPV is exactly zero. NPV is better for comparing projects of different sizes, because a big project can have a modest percentage return and still create more dollars of value.
Can NPV be used for a project with uneven cash flows?
Yes — that is exactly what NPV is for. Unlike simple payback, which only counts how fast money comes back, NPV discounts each year's cash flow separately, so uneven flows, late paybacks, and long projects are all handled correctly.