NPV Calculator
Net present value and IRR from an initial investment, a discount rate and yearly cash flows. $10,000 out and $3,000, $4,000, $5,000 back at 10% is -$210.37. How it works
Use the NPV Calculator
About the NPV Calculator
Investing $10,000 and receiving $3,000, $4,000 and $5,000 over three years at a 10% discount rate gives an NPV of −$210.37. The calculator discounts each cash flow from the end of its year, adds the present values ($9,789.63) and subtracts the initial investment. A positive NPV means the project earns more than the discount rate.
NPV of the sample project at different discount rates
| Discount rate | PV of cash flows | NPV | Profitability index |
|---|---|---|---|
| 0% | $12,000.00 | $2,000.00 | 1.20 |
| 5% | $10,804.45 | $804.45 | 1.08 |
| 8% | $10,176.30 | $176.30 | 1.02 |
| 9% | $9,979.93 | -$20.07 | 1.00 |
| 10% | $9,789.63 | -$210.37 | 0.98 |
| 12% | $9,426.25 | -$573.75 | 0.94 |
| 15% | $8,920.85 | -$1,079.15 | 0.89 |
Initial investment $10,000 and cash flows of $3,000, $4,000 and $5,000 in years 1 to 3. The NPV is positive at 8% and negative at 9%, where the index of 1.00 is 0.998 rounded to two decimals.
Present value of $1,000 received in a later year
| Discount rate | Year 1 | Year 3 | Year 5 | Year 10 | Year 20 |
|---|---|---|---|---|---|
| 5% | $952.38 | $863.84 | $783.53 | $613.91 | $376.89 |
| 8% | $925.93 | $793.83 | $680.58 | $463.19 | $214.55 |
| 10% | $909.09 | $751.31 | $620.92 | $385.54 | $148.64 |
| 12% | $892.86 | $711.78 | $567.43 | $321.97 | $103.67 |
| 15% | $869.57 | $657.52 | $497.18 | $247.18 | $61.10 |
$1,000 ÷ (1 + rate)^year, rounded to the cent, with the cash flow at the end of the year.
Frequently asked questions
- What is net present value and how do I calculate it?
- It is the value today of future cash flows minus what you invest now. Each year’s cash flow is divided by (1 + r)^t, where r is the discount rate and t the year, and the initial investment is subtracted from the total. With $10,000 invested and $3,000, $4,000 and $5,000 coming back at 10%, the present values are $2,727.27, $3,305.79 and $3,756.57.
- What does a negative NPV mean?
- The project earns less than the discount rate. It does not always mean the project loses money. In the sample, the cash flows add up to $2,000 more than the investment, yet the NPV is −$210.37 at 10%, because the later money is worth less today.
- What discount rate should I use for NPV?
- Use the return you require from the project, such as the rate you could earn on another investment of similar risk. The calculator uses the rate you type and does not suggest one. The first table shows how the sample NPV changes with the rate: positive at 8%, negative at 9%.
- Is the initial investment discounted?
- No. It is entered as a positive amount at time zero. The year 1 cash flow is discounted by one full year, so cash flows are treated as arriving at the end of each year.
- Can a cash flow be negative?
- Yes, enter an outflow with a minus sign. A $10,000 investment followed by $6,000, $6,000 and −$2,000 at 10% has an NPV of −$1,089.40, even though the cash flows add up to exactly the amount invested.
- Does the calculator find the IRR?
- Yes. The internal rate of return is the discount rate at which the NPV is zero: 8.9% for the sample, below the 10% you entered, which is why its NPV is negative. Five years of $15,000 on $50,000 has an IRR of 15.24%. If the cash flows change sign more than once, several rates can give an NPV of zero; the one nearest 0% is shown and the others are listed. With flows that never change sign there is no IRR.
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