Net Present Value (NPV) Calculator
Enter an initial investment, a discount rate, and a series of expected future cash flows to calculate net present value (NPV) — a core capital budgeting metric for deciding whether an investment is worth making.
How the Net Present Value (NPV) formula works
Each future cash flow is discounted back to today's value, then summed against the initial cost:
NPV = −Initial investment + Σ [ Cash flow in year t / (1 + discount rate)^t ]
Step-by-step calculation
- For each year's expected cash flow, divide by (1 + discount rate) raised to that year's number.
- Sum all of those discounted cash flows.
- Subtract the initial investment from that sum to get NPV.
Worked example
An initial investment of $50,000, a 10% discount rate, and cash flows of $15,000/year for 5 years: each year's cash flow is discounted (year 1: 15,000/1.1 ≈ 13,636; year 5: 15,000/1.1⁵ ≈ 9,314), summing to roughly $56,861. NPV = 56,861 − 50,000 ≈ $6,861 — a positive NPV, suggesting the investment creates value at that discount rate.
Frequently asked questions
What does a positive versus negative NPV mean?
A positive NPV means the investment is expected to generate more value than its cost, after accounting for the time value of money — generally considered worth pursuing. A negative NPV suggests the investment doesn't clear that bar at the chosen discount rate.
How do I choose a discount rate?
The discount rate typically reflects the required rate of return or cost of capital for the investment — often a company's weighted average cost of capital (WACC) for business investments, or a target personal rate of return for individual decisions.