NPV Calculator
Determine whether an investment or project creates value with our free NPV calculator. Enter your required discount rate, initial investment, and expected cash flows for up to 5 years to see the net present value and profitability index.
Net Present Value (NPV) is the gold standard for capital budgeting decisions. The concept is based on the time value of money: a dollar today is worth more than a dollar tomorrow because it can be invested and earn returns. NPV discounts all future cash flows back to their present value using your required rate of return, then subtracts the initial investment.
The formula is NPV = -Initial Investment + CF1/(1+r)^1 + CF2/(1+r)^2 + ... + CFn/(1+r)^n, where r is the discount rate. A positive NPV means the investment earns more than your required return and creates value. A negative NPV means the project fails to meet your return threshold and should be rejected.
The Profitability Index (PI) is a related metric that divides the present value of future cash flows by the initial investment. A PI greater than 1.0 indicates a positive NPV. The PI is especially useful when comparing multiple projects with different investment sizes, as it measures the value created per dollar invested rather than total value.