NPV calculator

What NPV tells you

Net present value converts every future cash flow of a project into today's money and adds them up, including the initial cost. A positive NPV means the project earns more than your discount rate (your cost of capital or the return you could get elsewhere), so it adds value; a negative NPV means you would be better off with the alternative.

Worked example

A project costs $10,000 today and returns $3,000, $4,200 and $6,800 over the next three years. At a 10% discount rate:

−10,000 + 3,000 ÷ 1.1 + 4,200 ÷ 1.1² + 6,800 ÷ 1.1³ = $1,307.29

The NPV is positive, so at 10% the project is worth doing. Its internal rate of return is 16.34%: the discount rate at which NPV would be exactly zero. Without discounting, the flows add up to $4,000, which overstates the value of money received later.

Entering flows

Put the first flow (time 0) on the first line, usually negative for the investment, then one line per year. Spreadsheet NPV functions discount the first value as well; to match them, add the time-0 flow separately.

Each cash flow is divided by (1 + rate) raised to its period number, starting at 0 for the first line, and the results are added. The internal rate of return is found numerically: the page searches for the rate where NPV changes sign and narrows it down by bisection to about twelve decimal places. The undiscounted total is the plain sum of the flows.