NPV Calculator
Calculate Net Present Value (NPV) to evaluate the profitability of an investment.
- Initial Investment: Enter the upfront cost (e.g., $50,000)
- Discount Rate: Enter your required return rate (e.g., 10%)
- Cash Flows: Enter future cash inflows separated by commas
- Interpretation: Positive NPV = Profitable, Negative NPV = Not Profitable
Example: $100,000 investment with 8% discount rate and $30,000 annual cash for 4 years = $9,372 NPV (Accept)
What is NPV?
Net Present Value (NPV) measures the difference between the present value of cash inflows and the initial investment.
Formula
NPV = Σ [ CF ÷ (1 + r)t ] − Initial Investment
Decision Rule
- NPV > 0 → Accept investment
- NPV = 0 → Break-even
- NPV < 0 → Reject investment
Frequently Asked Questions
What is a good NPV value?
Any positive NPV indicates a profitable investment. The higher the positive NPV, the better the investment opportunity. Negative NPV means the investment would lose money.
How do I choose the discount rate?
Use your company's cost of capital, weighted average cost of capital (WACC), or a rate that reflects the investment's risk. Typical rates range from 5-15% depending on risk.
What's the difference between NPV and IRR?
NPV calculates the dollar value of an investment's profitability, while IRR calculates the percentage return rate where NPV equals zero. Both are used in capital budgeting.
Can NPV be negative?
Yes, negative NPV means the present value of cash outflows exceeds the present value of cash inflows, indicating the investment should be rejected.
NPV Calculation Examples
| Initial Investment | Discount Rate | Cash Flows (4 years) | NPV | Decision |
|---|---|---|---|---|
| $50,000 | 10% | $15,000 each year | -$2,434 | Reject |
| $100,000 | 8% | $30,000 each year | $9,372 | Accept |