Net Present Value (NPV) Calculator
Is a Project Worth More Than It Costs, in Today's Dollars?
Net present value is the standard by which capital budgeting decisions get made: it discounts every future cash flow a project is expected to generate back to today's dollars, sums them, and subtracts the upfront cost. A positive NPV means the project is expected to create value beyond the required rate of return; a negative NPV means it destroys value even before accounting for anything going wrong.
The Formula
Each year's cash flow is discounted individually by the discount rate r raised to the power of that year's position, then all discounted values are summed and the initial investment is subtracted.
Where This Matters
- Capital budgeting — businesses use NPV as the primary screen for whether to fund a new project, purchase equipment, or expand a facility.
- Comparing mutually exclusive projects — when only one of several proposals can be funded, ranking by NPV (not just by size of return) identifies which creates the most absolute value.
- Choosing the right discount rate matters as much as the cash flows — a project's NPV can flip from positive to negative depending on the discount rate used, which is usually tied to the company's cost of capital.
Worked Example
| Year | Cash flow | Present value |
|---|---|---|
| 1 | $3,000 | $2,777.78 |
| 2 | $4,000 | $3,429.36 |
| 3 | $4,000 | $3,175.33 |
| 4 | $3,000 | $2,205.09 |
| Net Present Value | $1,587.55 | |
Since NPV is positive, the project is expected to generate more value than its cost at an 8% required return — a signal to accept it under standard capital budgeting criteria.
How to Use This Calculator
- Enter the initial investment (upfront cost).
- Enter the discount rate (your required rate of return or cost of capital).
- Enter the expected yearly cash flows, comma-separated, in order (e.g.
3000,4000,4000,3000). - Select Calculate to see each year's discounted value, the net present value, and an accept/reject verdict.
Related Calculations
Find the exact break-even discount rate with the Internal Rate of Return (IRR) Calculator, or see how quickly the investment is recovered with the Payback Period Calculator.