NPV Calculator
Find out whether a project’s future cash flows are worth more than what it costs today.
Reading this result: a positive NPV means the project is expected to create 9,890.65 of value beyond what the same money would earn at 8%. On this basis it is worth doing.
General information only, not financial advice. Check any figure before you act on it.
What net present value actually measures
Net present value answers a question that simple profit cannot: is this project worth more than the money it ties up, once you account for the fact that money arriving in five years is worth less than money in your hand today?
The mechanism is straightforward. Every future cash flow is shrunk — discounted — back to what it is worth in today’s money, using a rate that reflects what you could earn elsewhere at similar risk. Those present values are added up and the initial outlay is subtracted. What is left is the value the project creates, expressed in today’s currency.
The decision rule is unusually clean. A positive NPV means the project beats your alternative use of the money. A negative NPV means it does not. Zero means it exactly matches. Unlike most ratios, NPV gives you an answer in money rather than a percentage, which is why it is the measure most finance textbooks recommend when two methods disagree.
The NPV formula
NPV = Σ [ Cash flowt ÷ (1 + r)t ] − Initial investmentwhere r = discount rate and t = the year the cash arrivesThe exponent does the heavy lifting. At a 10% discount rate, $1,000 arriving next year is worth $909 today; the same $1,000 arriving in year ten is worth only $386. The further out a cash flow sits, the less it counts — which is why projects whose payoff is all in the distant future struggle to show a positive NPV.
Choosing the discount rate is the hard part, and it is a judgement, not a calculation. Common choices are your weighted average cost of capital, your borrowing rate, or the return available on a comparable-risk alternative. Riskier projects deserve higher rates.
Three worked examples
Clear accept
Equipment purchase
A machine costs $50,000 and is expected to generate $15,000 a year for five years. The company’s cost of capital is 8%.
Year 2: 15,000 ÷ 1.08² = 12,860.08
Year 3: 15,000 ÷ 1.08³ = 11,907.48
Year 4: 15,000 ÷ 1.08⁴ = 11,025.44
Year 5: 15,000 ÷ 1.08⁵ = 10,208.76
Present value of inflows = 59,890.65
NPV = 59,890.65 − 50,000 = 9,890.65
The undiscounted total is $75,000, which makes the project look like a $25,000 winner. Discounting cuts that apparent gain by 60%, to $9,890.65. It is still worth doing — but the honest number is far smaller than the naive one.
Marginal reject
A project that just misses
An investment of $20,000 returns $8,000 a year for three years. The discount rate is 10%.
Year 2: 8,000 ÷ 1.10² = 6,611.57
Year 3: 8,000 ÷ 1.10³ = 6,010.52
Present value = 19,894.82
NPV = 19,894.82 − 20,000 = −105.18
The project returns $24,000 on a $20,000 outlay and still fails. Those dollars simply arrive too slowly to beat a 10% alternative. A shortfall this small is also a warning: at a 9% discount rate the same project turns positive. When NPV lands close to zero, the decision rests entirely on a rate you guessed.
Rate sensitivity
The same machine, a higher hurdle
Take the $50,000 machine returning $15,000 for five years, but assume capital costs 15% rather than 8%.
At 15%: NPV = 282.33
Seven percentage points on the discount rate wipe out 97% of the project’s value. Nothing about the machine changed. This is why you should always test two or three discount rates rather than trusting a single figure, and why a project that only works at a low rate is a fragile project.
Where NPV misleads you
NPV, IRR and payback compared
| Measure | Answer is in | Needs a discount rate? | Main weakness |
|---|---|---|---|
| NPV | Money | Yes | Ignores project size |
| IRR | A percentage | No — it finds one | Can give multiple answers |
| Payback | Years | Optional | Ignores everything after |
When NPV and IRR disagree about which of two projects to pick — which happens when they differ in size or in cash timing — follow NPV. It measures value created in money, which is what actually accrues to the business.
How to calculate NPV in Excel or Google Sheets
There is a trap here that catches almost everyone. Excel’s NPV() assumes the first value in the range arrives at the end of year one. Your initial outlay happens at time zero, so it must sit outside the function:
=NPV(rate, year1:year5) - initial_investmentwrong: =NPV(rate, initial:year5)The wrong version discounts your upfront cost by one year, understating the true cost and overstating NPV. If your cash flows arrive on irregular dates rather than neat annual intervals, use XNPV() instead and give it the actual dates.
Frequently asked questions
What discount rate should I use?
Use the return you could earn on the next best alternative at similar risk. For a company, that is usually the weighted average cost of capital. For a small business, the borrowing rate is a practical starting point. Add a premium for genuinely risky projects. Whatever you pick, test the result at a few rates either side.
Does a positive NPV always mean go ahead?
It means the project beats the alternative you used as the discount rate, which is not quite the same thing. A small positive NPV built on optimistic forecasts is weak evidence. Check how much cushion there is before the number turns negative, and whether you have a better use for the same money.
Should the initial investment be positive or negative?
In this calculator, enter it as a positive number — it is subtracted for you. In a spreadsheet built by hand, the convention is usually to enter outflows as negatives and let the arithmetic sum everything. Either works; mixing the two conventions does not.
What is the profitability index?
Present value of the inflows divided by the initial investment. Above 1.0 means positive NPV. It is useful when comparing projects of different sizes, or when capital is limited and you need the most value per dollar invested rather than the largest total.
NPV or IRR?
Both, and NPV wins any disagreement. IRR is easier to communicate because it is a percentage, but it can return several answers when cash flows change sign more than once, and it implicitly assumes reinvestment at the IRR itself. NPV has neither problem.
Should I include a terminal or salvage value?
Yes, if the asset is worth something at the end. Add it to the final year’s cash flow. For an ongoing business rather than a fixed-life asset, a terminal value representing all cash beyond the forecast period often dominates the whole calculation, so treat it carefully.
References
- Brealey, R. A., Myers, S. C. & Allen, F. Principles of Corporate Finance, 13th edition, McGraw-Hill Education — on discounted cash flow and why NPV is preferred to IRR.
- Damodaran, A. Investment Valuation: Tools and Techniques for Determining the Value of Any Asset, 3rd edition, Wiley — on discount rates and terminal value.
Keep going
Written and reviewed by Ghayas Uddin, MS (Finance), financial analyst. Last reviewed 21 September 2026. Found an error? Email support@babadigit.com and we will correct it.