NPV Calculator
Enter a discount rate, an upfront investment and up to six yearly cash flows. In the default example the net present value is $674.13.
How the NPV calculator works
Net present value converts a stream of future cash flows into today’s dollars and subtracts what you pay up front. A dollar received in three years is worth less than a dollar today, because you could earn a return on it in the meantime. The discount rate is how that difference is measured. It is often set to your required return or your cost of capital.
Enter the discount rate, then the year 0 cash flow as a negative number, then the expected cash in years 1 through 6. Leave unused years at zero. The calculator discounts each year back to the present and adds them up.
The formulas
Example: At a 10 percent discount rate, paying $10,000 now and receiving $3,000, $3,500, $4,000 and $3,000 over four years gives an NPV of $674.13. The future cash flows are worth $10,674.13 today against an investment of $10,000.00, so the profitability index is 1.07. The result is: Positive: returns more than the discount rate. These are illustration numbers only.
Reading the result
A positive NPV means the project is expected to earn more than the discount rate. A negative NPV means it falls short. The answer depends heavily on the discount rate and on how reliable your cash flow estimates are, so try a few rates. The IRR is the discount rate at which NPV is exactly zero.
Note the Excel NPV function treats its first value as arriving at the end of period one, so you add the year 0 amount separately. This calculator already treats year 0 as today. It does not model taxes, inflation or uneven timing within a year, and it is for general information, not financial advice. To project how a balance grows, see the compound interest calculator.
If the discount rate is zero, NPV is simply the sum of all cash flows. As the rate climbs, later cash flows lose more value, so projects that pay back slowly drop faster than ones that pay back quickly. Keep the discount rate as a percentage, such as 10 for 10 percent.
Choosing between projects
When two projects compete for the same money, compare their NPVs at the same discount rate. A larger NPV adds more value, although a smaller project with a higher profitability index may be a better use of limited funds. Run the calculator at a low, medium and high discount rate to see how fragile the answer is. If the NPV turns negative at a rate only slightly above your estimate, the project has little margin for error. Also be realistic about timing. Cash that arrives late, or not at all, is the most common reason a promising NPV disappears.
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Frequently asked questions
What is a good NPV?
Any NPV above zero means the cash flows beat the discount rate. Among several projects, a higher NPV usually means more value created, if risk is similar.
How do I calculate NPV in Excel?
Use =NPV(rate, year1:year6)+year0, because Excel discounts the first value one full period. For the default example this gives $674.13.
What discount rate should I use?
Many businesses use their cost of capital or a required return that reflects the project's risk. There is no single correct rate, so test a range.
What does the profitability index tell me?
It is the present value of future cash flows divided by the initial investment. Above 1 means NPV is positive. Here it is 1.07.
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