Net present value (NPV) measures whether the present value of future cash inflows exceeds the initial investment after applying a required return (discount rate). A positive NPV means the project adds value; negative NPV means it destroys value at that discount rate. NPV is the gold standard for capital budgeting because it accounts for the time value of money and project scale.
How to use this calculator
- Enter your required return or discount rate (hurdle rate, WACC, or cost of capital).
- List cash flows in chronological order, separated by commas. The first value is typically the initial investment (negative).
- Review the NPV result and accept/reject recommendation.
- Compare NPV results across mutually exclusive projects — choose the highest NPV, not just positive NPV.
Formula
NPV = Σ [CF_t / (1 + r)^t] for t = 0, 1, 2, …, n. Period 0 is undiscounted (the initial outlay). Each subsequent cash flow is divided by (1 + discount rate) raised to the period number. Positive NPV → accept; negative NPV → reject at this rate.
Example
Cash flows of −$100,000, $30,000, $40,000, $50,000, and $60,000 at a 10% discount rate produce a positive NPV — the project returns more than 10% and creates value for investors.
Frequently asked questions
What discount rate should I use?
Use your weighted average cost of capital (WACC) for corporate projects, or a hurdle rate set by your investment committee. Higher-risk projects warrant a higher discount rate.
How do I enter the cash flows?
Separate values with commas: -100000,30000,40000,50000. Negative values represent outflows; positive values represent inflows. Period 0 is the first number.
NPV vs IRR — which is better?
NPV is generally preferred because it measures absolute dollar value created and handles non-conventional cash flows correctly. IRR can mis-rank projects of different sizes. Use both, but decide on NPV.
What if NPV is exactly zero?
Zero NPV means the project earns exactly your discount rate — it neither creates nor destroys value. In practice, marginal projects with zero NPV are often rejected due to execution risk.