NPV calculator (net present value)
Discount five years of cash flows at your required rate and subtract the initial investment to see if a project creates value.
How it is calculated
NPV = −C₀ + Σ CFt ÷ (1 + r)t, for t = 1 to 5, with r the discount rate as a decimal. A positive NPV means the project earns more than the discount rate.
Worked example
Investment 10,000, r = 10 %, inflows 4,000 a year for four years: PV of inflows = 12,679.46, NPV = 2,679.46.
Steps
- Enter the initial investment as a positive number.
- Enter the discount rate (your cost of capital or hurdle rate).
- Enter the cash flow of each year, then read the NPV.
Frequently asked questions
Which discount rate should I use?
Use the weighted average cost of capital or your hurdle rate for the risk of the project.
Why only five years?
The calculator covers five years. For longer projects, add the flows and their discount factors by hand.
Does this include taxes and inflation?
Use after-tax, real or nominal flows consistently with the discount rate. The calculator does not adjust them.
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References
NPV definition from corporate finance texts (Brealey, Myers and Allen, Principles of Corporate Finance).
Estimates for information only. Verify critical values with a qualified engineer or your supplier standards.