NPV Calculator

Quick answer

This calculator computes Net Present Value to evaluate investment profitability.

Formula: NPV = Σ(Cash Flow / (1 + r)^t) - Initial Investment.

Figures are estimates from this calculator’s standard formula — adjust the inputs in the tool below for your exact number.

How NPV Calculation Works

NPV = Σ(Cash Flow / (1 + r)^t) - Initial Investment

NPV calculates the present value of all future cash flows, discounted at a required rate of return, minus the initial investment. A positive NPV indicates the investment should generate value; negative NPV suggests the investment will destroy value.

1
Step 1
Enter the initial investment amount
2
Step 2
Set your discount rate (cost of capital or required return)
3
Step 3
Input expected cash flows for each future year
4
Step 4
Calculator discounts each cash flow to present value
5
Step 5
NPV = sum of discounted cash flows minus initial investment

Use Cases

Capital Budgeting

Evaluate whether to proceed with major capital expenditures like equipment purchases or facility expansions.

Project Selection

Compare multiple potential projects with different cash flow patterns to allocate limited capital effectively.

Acquisition Valuation

Determine the fair value of a business by discounting its projected future cash flows to present value.

Investment Analysis

Assess real estate, stocks, or other investments by comparing NPV of expected returns to alternative opportunities.

Tips

1
Choose your discount rate carefully - it significantly impacts NPV results
2
Use company's WACC (Weighted Average Cost of Capital) as discount rate for corporate projects
3
Always include terminal value for projects with cash flows beyond your projection period
4
Positive NPV doesn't guarantee success - consider qualitative factors too
5
Run sensitivity analysis on key assumptions to understand risk range

Common Mistakes

Using Wrong Discount Rate
Ignoring Terminal Value
Overly Optimistic Cash Flows
Not Considering Inflation

FAQs

What does positive NPV mean?

Positive NPV means the investment is expected to generate more value than its cost. It should increase company/investor wealth and is generally worth pursuing.

What discount rate should I use?

Use your cost of capital or required rate of return. For companies, WACC (7-12% typical). For personal investments, consider opportunity cost and risk.

What's the difference between NPV and IRR?

NPV gives dollar value created; IRR gives percentage return. NPV is generally preferred because it measures absolute value creation, not just rate.

Can NPV be negative?

Yes. Negative NPV means the investment is expected to destroy value - the present value of returns is less than the cost. Generally avoid negative NPV projects.

How do I include terminal value in NPV?

Estimate ongoing value at end of projection period (often using perpetuity formula or exit multiple), then discount that terminal value back to present.

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