NPV Calculator
Is this project worth the investment at your required return? Calculate Net Present Value, compare NPV vs IRR, or run a sensitivity analysis across discount rates. Works with any currency.
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How to Use This Calculator
Tab "Calculate NPV"
Enter your initial investment (the upfront cost), a discount rate (your required return), and annual cash flows for up to 10 years. The result shows the Net Present Value: positive means the project creates value, negative means it destroys value at your required rate.
Tab "NPV vs IRR"
Same inputs as the NPV tab, but the result shows both NPV and the Internal Rate of Return (IRR) side by side. IRR is the discount rate where NPV equals zero. If IRR exceeds your hurdle rate, the project adds value.
Tab "Sensitivity"
Same inputs, but the result shows NPV calculated at five standard discount rates: 5%, 8%, 10%, 12%, and 15%. This helps you understand how sensitive your investment decision is to changes in the cost of capital or required return.
The Formulas
NPV = Σ [CF_t / (1 + r)^t] for t = 0 to n
Where CF_0 is typically the negative initial investment.
Internal Rate of Return (IRR):
IRR = the rate r where NPV = 0
Solved using Newton-Raphson iteration with bisection fallback (max 100 iterations).
Decision rule:
NPV > 0 → accept (investment earns more than the required rate)
NPV < 0 → reject (investment earns less than the required rate)
IRR > hurdle rate → accept
All calculations use standard discounted cash flow (DCF) analysis. No country-specific tax rates are applied. Results are pre-tax estimates.
Worked Examples
Example 1 — Invest $100K, receive $35K/yr for 4 years, 10% discount
A business considers a $100,000 investment that generates $35,000 per year for 4 years. The required rate of return is 10%.
NPV is positive ($10,945). The project earns more than the 10% required return. Decision: invest.
Example 2 — Same project at 15% discount rate
Same $100,000 investment and $35,000 annual cash flows, but the required return is now 15%.
NPV is slightly negative. At a 15% hurdle rate, the project barely fails to meet the required return. The IRR is very close to 15%.
Example 3 — Sensitivity analysis at multiple rates
Same project tested at 8%, 10%, 12%, and 15% discount rates:
The project is NPV-positive up to about 14.5% (its IRR). Above that rate, NPV turns negative. The sensitivity table makes this threshold visible at a glance.
Understanding NPV
What Is Net Present Value?
Net Present Value converts future cash flows into today's dollars by discounting them at your required rate of return. A positive NPV means the investment creates more value than it costs, after accounting for the time value of money. It is the gold standard for capital budgeting decisions.
NPV vs IRR
NPV gives you a dollar amount of value created. IRR gives you the actual percentage return. They usually agree, but NPV is preferred when comparing projects of different sizes because a small project with a high IRR might create less total value than a large project with a lower IRR.
Choosing a Discount Rate
The discount rate reflects the opportunity cost of capital. Common choices include the company's weighted average cost of capital (WACC), the expected return on alternative investments, or a risk-adjusted hurdle rate. Higher-risk projects deserve higher discount rates.
Limitations
NPV analysis assumes: (1) cash flows are known or reasonably estimated, (2) the discount rate remains constant, (3) cash flows occur at the end of each period. In reality, cash flows are uncertain, rates may change, and timing may vary. Use NPV as a decision-support tool alongside sensitivity analysis, not as the sole criterion.