Investment
Net Present Value (NPV) Calculator
Calculate the net present value of a series of future cash flows discounted at your required rate of return. The gold standard for capital budgeting and investment decisions.
How the Formula Works
NPV discounts each future cash flow back to today's value using the discount rate, then subtracts the initial investment. NPV = -Initial Investment + Σ(Cash Flow ÷ (1 + r)^t) for each year t. A positive NPV means the investment creates value above your required return; negative NPV means it destroys value.
When to Use This Calculator
Use NPV for any major capital allocation decision: equipment purchases, facility expansions, acquisition targets, new product lines, or technology investments. NPV is preferred over ROI and payback period because it accounts for the time value of money and the magnitude of cash flows.
Frequently Asked Questions
What discount rate should I use?
For most corporate investments, use your company's Weighted Average Cost of Capital (WACC), typically 8-12%. For riskier projects (new markets, unproven technology), add a risk premium of 2-5%. For personal investments, use your required rate of return — the minimum return that would make you prefer the investment over alternatives.
What if the NPV is exactly zero?
An NPV of zero means the investment earns exactly your required rate of return — it neither creates nor destroys value. In practice, pursue projects with positive NPV and avoid negative NPV. When comparing mutually exclusive projects, choose the one with the highest NPV.
How does NPV compare to IRR?
Internal Rate of Return (IRR) is the discount rate that makes NPV equal to zero. NPV tells you the dollar value created; IRR tells you the percentage return. NPV is generally preferred because it handles reinvestment assumptions better and works correctly with unconventional cash flow patterns. IRR can give misleading results when cash flows alternate between positive and negative.