How to use the NPV Calculator
- Enter the initial investment.
- Enter each future period's expected net cash flow.
- Enter the discount rate — usually your cost of capital or required return.
- Test the result at a higher and lower rate to see how sensitive it is.
How the calculation works
Each cash flow is divided by (1 + r) raised to its period number, converting it to present value, and the initial outlay is subtracted. The discount rate carries all the judgement: it should reflect the cost of the money and the risk of the specific project, so a speculative venture is discounted harder than a contracted revenue stream.
NPV's advantage over IRR is that it reports value in currency rather than percentage, so it scales correctly when comparing projects of different sizes and never produces the multiple-solution problem. Its weakness is sensitivity — small changes in the discount rate swing long-dated flows substantially, which is why any serious analysis tests a range of rates rather than trusting a single point estimate.
NPV = Σ CFₜ / (1 + r)ᵗ − initial investmentSource: Discounted cash flow method, standard in corporate finance and capital budgeting practice.
Worked example
A 60,000 investment returning 18,000, 22,000, 25,000 and 20,000 over four years, discounted at 10%.
- Year 1: 18,000 / 1.10 = 16,364.
- Year 2: 22,000 / 1.21 = 18,182.
- Year 3: 25,000 / 1.331 = 18,783.
- Year 4: 20,000 / 1.4641 = 13,660. Sum = 66,989.
NPV = 66,989 − 60,000 = +6,989, so the project adds value at a 10% required return. At 15% it turns slightly negative.
Frequently asked questions
What discount rate should I use?+
Your weighted average cost of capital for a typical project, adjusted upward for unusual risk. Individuals often use the return available on a comparable alternative.
Is a positive NPV always a go-ahead?+
It means the project beats the discount rate, but capital is limited — with several positive-NPV options you take the ones creating the most value per unit of capital.
Why is NPV preferred over IRR?+
It measures absolute value created, scales properly across project sizes, avoids the multiple-solution problem, and makes no unrealistic reinvestment assumption.
How sensitive is NPV to the discount rate?+
Very, especially for long-dated cash flows. Always recompute at a few rates to see whether the decision holds across a plausible range.
Last reviewed August 31, 2026. We review this page whenever the underlying formula, tax year, published rate or standard changes.