NPV Calculator

How the NPV calculator works

Net present value takes every future cash flow a project is expected to produce, converts each one into what it is worth today, adds those present values together, and subtracts the money you have to put in at the start. The conversion is done with a discount rate that you choose.

The fraction 1 ÷ (1 + r)^t is the discount factor for year t. At a 10% discount rate, a dollar arriving one year from now is worth about 90.9 cents today, and a dollar arriving five years out is worth about 62.1 cents. The table above prints the factor for every year, so you can see exactly how much each year's money shrinks on the way back to the present.

Why future dollars get discounted

Money you already hold can be put to work. It can pay down a balance that is accruing interest, buy inventory that turns over twice a year, or simply sit in an account earning something. A dollar promised in three years cannot do any of that in the meantime, so it is not equivalent to a dollar in hand. Discounting is the arithmetic that makes the two amounts comparable: it asks how much you would need today, growing at rate r, to end up with that future dollar right on schedule.

This is also why the total undiscounted cash flow in the results panel is almost always larger than the present value figure beneath it. The gap between those two numbers is the cost of waiting. A long project whose money arrives late shows a wide gap; a short project that pays back quickly shows a narrow one, even when both add up to the same nominal total.

How the discount rate choice drives the answer

The discount rate has more leverage over the result than any other input, and it is also the most subjective one. It is not read off a statement — it is a judgment about what the money could otherwise earn, or what it costs you to raise. A company might use its weighted average cost of capital, an owner financing a purchase might use the interest rate on the loan itself, and someone weighing two uses for the same cash might use the expected return of the option being given up.

Because the rate is compounded once for every year in the timeline, small changes to it build up year after year and hit the later years hardest. Raising the rate pulls distant cash flows down sharply while barely touching year one, so a project that back-loads its returns is far more sensitive to this assumption than one that front-loads them. A practical way to use this page is to drag the rate slider across a range you consider defensible and watch where NPV changes sign. That crossover point is the return the cash flows actually imply, and it is what the IRR calculator solves for directly.

Reading the year-by-year table

Year 0 holds the initial investment, which is not discounted because it happens now. Each following row shows the cash flow you entered, its discount factor, the present value that results, and a running cumulative total. Since that cumulative column starts negative and adds discounted amounts, the first year it turns positive is the discounted payback point: the moment the project has recovered its cost in today's dollars. The plain, undiscounted version of that same idea is covered by the payback period calculator.

Any year is allowed to be negative. A mid-project equipment replacement, a second round of build-out, or a loss year all reduce the present value total, and each is discounted with the same factor an inflow in that year would receive.

What the result does and does not say

A positive NPV means one specific thing: at the discount rate you entered, the present value of the cash flows you estimated is larger than the initial outlay, so the project clears that hurdle. It is a conditional statement about your inputs rather than a verdict about the project, and it inherits every bit of uncertainty sitting in the forecasts you typed in.

The profitability index restates the same comparison as a ratio — present value of the cash flows divided by the initial investment — which makes projects of different sizes easier to line up next to each other. An index above 1.0 and a positive NPV always appear together, because both test whether the discounted inflows exceed the money put in.

NPV says nothing about timing risk, about whether the cash flows are contractually certain or merely hoped for, or about what happens if a project needs more capital than modeled halfway through. It is one number produced from your assumptions. Change the assumptions and the number changes, which is precisely why the inputs are adjustable.