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NPV Calculator - Calculate Net Present Value Online

Free NPV calculator to evaluate investment profitability. Calculate net present value, IRR, profitability index, and payback period for any investment project.

9 min read

iAbout This Calculator

Net Present Value (NPV) is a fundamental financial metric used in capital budgeting to evaluate the profitability of investments and projects. It represents the difference between the present value of cash inflows and the initial investment, accounting for the time value of money. A positive NPV indicates that the projected earnings exceed the anticipated costs, making it a worthwhile investment. Our free NPV calculator helps you make informed investment decisions by computing NPV, Internal Rate of Return (IRR), profitability index, and payback periods for any investment scenario.

?How to Use

  1. 1

    Enter the initial investment amount - this is the upfront cost or capital outlay required for the project.

  2. 2

    Specify the discount rate - typically your required rate of return, cost of capital, or minimum acceptable return.

  3. 3

    Add cash flows for each period - enter the expected net cash inflow or outflow for each year of the project.

  4. 4

    Click Add Period to include additional years as needed for your investment timeline.

  5. 5

    Click Calculate to see NPV, IRR, profitability index, and payback period analysis.

  6. 6

    Review the detailed cash flow table showing present value calculations for each period.

fFormula

NPV = \sum_{t=1}^{n} \frac{C_t}{(1+r)^t} - C_0

NPV equals the sum of all future cash flows discounted to present value, minus the initial investment. Each cash flow is divided by (1 + discount rate) raised to the power of its time period.

NPV
Net Present Value - the total value added by the investment
C0
Initial investment (cash outflow at time 0)
Ct
Cash flow at time period t
r
Discount rate (required rate of return)
n
Total number of periods
t
Time period

Examples

Equipment Purchase

Inputs: initialInvestment: 100000, discountRate: 10, cashFlows: 30000, 35000, 40000, 45000
NPV = $18,435.89, PI = 1.18

A $100,000 equipment purchase generating $30K-$45K annually over 4 years at 10% discount rate yields a positive NPV of $18,435.89 and profitability index of 1.18, indicating a worthwhile investment.

Real Estate Development

Inputs: initialInvestment: 500000, discountRate: 8, cashFlows: 50000, 75000, 100000, 125000, 450000
NPV = $124,687.54, IRR = 15.2%

A $500,000 property investment with growing rental income and $450K final sale value at 8% discount rate shows strong NPV of $124,687.54 with IRR of 15.2%.

Product Launch

Inputs: initialInvestment: 250000, discountRate: 12, cashFlows: 80000, 90000, 70000, 60000
NPV = -$12,543.21, PI = 0.95

A product launch costing $250,000 with declining cash flows at 12% discount rate has negative NPV, suggesting the project should be reconsidered or costs reduced.

Solar Panel Installation

Inputs: initialInvestment: 25000, discountRate: 6, cashFlows: 4000x10 (monthly)
NPV = $4,440.79, Payback = 6.25 years

A $25,000 solar installation saving $4,000 annually for 10 years at 6% discount rate yields positive NPV of $4,440.79 with 6.25 year payback period.

Use Cases

Capital Budgeting

Evaluate major capital expenditures like equipment purchases, facility expansions, or technology upgrades to determine which investments create the most value.

Project Selection

Compare multiple investment opportunities with different cash flow patterns and timelines to select the most profitable projects for your portfolio.

Real Estate Investment

Analyze property investments by projecting rental income, appreciation, and eventual sale proceeds to determine if the investment meets your return requirements.

Business Acquisition

Value potential acquisitions by projecting future cash flows and determining the maximum price you should pay for a business.

Make vs Buy Decisions

Compare the long-term costs of producing in-house versus outsourcing, accounting for the time value of money and all associated cash flows.

Frequently Asked Questions

What discount rate should I use for NPV calculation?
The discount rate should reflect your required rate of return or cost of capital. Common approaches include: using your company's weighted average cost of capital (WACC), the return you could earn on similar-risk investments, or adding a risk premium to the risk-free rate. For personal investments, you might use your expected portfolio return (e.g., 7-10%).
What is the difference between NPV and IRR?
NPV tells you the dollar value created by an investment, while IRR tells you the percentage return. NPV is generally preferred because it measures absolute value creation and assumes reinvestment at the discount rate. IRR assumes reinvestment at the IRR itself, which may be unrealistic for very high or low IRRs.
What does a profitability index greater than 1 mean?
A profitability index (PI) greater than 1 means the present value of future cash flows exceeds the initial investment, indicating a profitable project. PI = 1.2 means you receive $1.20 in present value for every $1 invested. PI is especially useful for ranking projects when you have limited capital to invest.
Why might NPV and IRR give different investment recommendations?
NPV and IRR can conflict when comparing mutually exclusive projects of different sizes or durations. NPV measures absolute value while IRR measures percentage return. A small project might have higher IRR but create less total value than a larger project with lower IRR but higher NPV. When in conflict, NPV is usually preferred.
How do I handle negative cash flows in the middle of a project?
Enter negative values for any period where cash outflows exceed inflows. This commonly occurs for projects requiring additional investments or during renovation phases. The NPV calculation handles negative cash flows correctly by discounting them at the same rate as positive flows.

Conclusion

NPV is the gold standard for investment analysis because it directly measures value creation while accounting for the time value of money. By calculating NPV alongside IRR, profitability index, and payback period, you get a comprehensive view of any investment opportunity. Remember that NPV analysis is only as good as your cash flow projections - spend time developing realistic estimates and consider running multiple scenarios to make robust investment decisions.