How to use this calculator
Enter the details of the project.
- Initial investment: the amount paid at the start.
- Discount rate: the yearly return you require from the project. Many businesses use their cost of capital, which you can estimate with the WACC calculator.
- Cash flows for years 1 to 5: the net cash you expect to receive each year. Enter zero for years with no cash flow, and a negative number for a year when the project needs more money.
The calculator returns the NPV, the present value of inflows, the profitability index and a verdict on whether the project adds or destroys value. A table lists the discount factor and present value for each year, and a chart tracks the cumulative discounted cash flow.
Worked example
These are the starting values in the calculator above and the results they give. Change any input to see your own numbers.
- Initial investment
- $100,000
- Discount rate
- 10%
- Cash flow, year 1
- $25,000
- Cash flow, year 2
- $30,000
- Cash flow, year 3
- $35,000
- Cash flow, year 4
- $35,000
- Cash flow, year 5
- $30,000
- Net present value
- $16,350
- Present value of inflows
- $116,350
- Profitability index
- 1.16
- Verdict
- Adds value
How NPV is calculated
Money received later is worth less than money received today, because money in hand today can be invested and earn a return. Discounting converts a future amount into its value today.
Each year has a discount factor: 1 divided by one plus the discount rate, raised to the power of the year number. At a 10% rate, the factor for year 1 is 1 ÷ 1.10, or about 0.909. Multiply a year's cash flow by its factor to get its present value.
Add up the five present values to get the present value of inflows. Subtract the initial investment and you have the net present value. The profitability index is the present value of inflows divided by the initial investment.
NPV = −I + CF1 ÷ (1 + r)^1 + CF2 ÷ (1 + r)^2 + ... + CF5 ÷ (1 + r)^5- I
- initial investment
- CF1 to CF5
- cash flow in each of years 1 to 5
- r
- discount rate per year, as a decimal
- 1 ÷ (1 + r)^t
- discount factor for year t
How to read the results
- NPV above zero: the project is expected to earn more than your required return. It adds value.
- NPV of zero: the project earns exactly the required return.
- NPV below zero: the project earns less than the required return. It destroys value compared with your alternative, even if it returns more cash than you put in.
The profitability index tells the same story as a ratio. Above 1.0 means each dollar invested returns more than a dollar in today's money. It is useful for ranking projects of different sizes when funds are limited.
On the chart, the line starts below zero at the size of the investment and climbs as discounted cash comes in. The point where it crosses zero is the discounted payback point.
NPV is only as good as its inputs. Forecast cash flows are estimates, and the result is sensitive to the discount rate. Run the numbers with a cautious case and an optimistic case, not a single forecast. To see how NPV compares with the rate-of-return approach, read NPV vs IRR.
Frequently asked questions
What is net present value?
Net present value, or NPV, is the value today of all the cash a project is expected to produce, minus the amount invested. Future cash flows are discounted because money received later is worth less than money in hand now. A positive NPV means the project is expected to beat the return you require. A negative NPV means it is expected to fall short.
What discount rate should I use for NPV?
Use the return you could expect from another investment of similar risk. Businesses often use their weighted average cost of capital, then add a margin for riskier projects. Individuals sometimes use the return they expect from their next best option. A higher rate lowers NPV, so it is worth testing a few rates to see how sensitive the decision is.
What does a negative NPV mean?
A negative NPV means the project's discounted cash flows are worth less than the initial investment. The project may still return more cash than you put in, but it earns less than the discount rate you set. In other words, the same money is expected to do better in the alternative that your discount rate represents.
What is the profitability index?
The profitability index is the present value of a project's inflows divided by its initial investment. A value above 1.0 goes with a positive NPV, and a value below 1.0 goes with a negative NPV. Because it is a ratio, it shows value created per dollar invested, which helps when comparing projects of different sizes with a limited budget.
What is the difference between NPV and IRR?
NPV gives a dollar amount: the value a project adds at a chosen discount rate. IRR gives a percentage: the discount rate at which NPV would be exactly zero. They usually agree on whether a single project is worthwhile. They can rank competing projects differently, and in that case NPV is generally treated as the more reliable guide.
This calculator gives estimates for education only. It does not know your full situation and is not financial advice. Reviewed and updated November 15, 2026.