# NPV Calculator

Calculate the Net Present Value of any investment or project. Enter your discount rate and cash flows to determine if a project is worth pursuing.

## What this calculates

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.

## Inputs

- **Discount Rate** (%) — min 0, max 100 — Your required rate of return or cost of capital.
- **Initial Investment** ($) — min 0 — The upfront cost of the investment (entered as a positive number).
- **Cash Flow Year 1** ($) — Expected net cash flow in year 1.
- **Cash Flow Year 2** ($) — Expected net cash flow in year 2.
- **Cash Flow Year 3** ($) — Expected net cash flow in year 3.
- **Cash Flow Year 4** ($) — Expected net cash flow in year 4.
- **Cash Flow Year 5** ($) — Expected net cash flow in year 5.

## Outputs

- **Net Present Value (NPV)** — formatted as currency — The net present value of the investment. Positive means the project adds value.
- **Total Cash Flows** — formatted as currency — The undiscounted sum of all future cash flows.
- **Profitability Index** — PV of future cash flows divided by initial investment. Above 1.0 means value is created.
- **Recommendation** — formatted as text — Whether to accept or reject the investment based on NPV.

## Details

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.

## Frequently Asked Questions

**Q: What is Net Present Value (NPV)?**

A: NPV is the difference between the present value of future cash flows and the initial investment. It tells you whether a project or investment will create value at your required rate of return. A positive NPV means the investment exceeds your hurdle rate and is worth pursuing; a negative NPV means it falls short.

**Q: How do I choose a discount rate?**

A: The discount rate should reflect the risk of the investment and your opportunity cost. Common choices include: the company's Weighted Average Cost of Capital (WACC) for corporate projects, the expected market return for stock investments, or a personal hurdle rate based on alternative investment opportunities. Higher-risk projects should use higher discount rates.

**Q: What is the difference between NPV and IRR?**

A: NPV tells you the dollar amount of value created or destroyed, while IRR (Internal Rate of Return) tells you the percentage return. NPV is generally preferred because it gives a clear dollar measure of value, handles multiple sign changes in cash flows more reliably, and does not suffer from the reinvestment rate assumption issue that can make IRR misleading.

**Q: What is the Profitability Index?**

A: The Profitability Index (PI) equals the present value of future cash flows divided by the initial investment. A PI above 1.0 indicates positive NPV. It is useful for ranking projects when capital is limited, as it measures value per dollar invested. For example, a project with PI of 1.5 creates $1.50 of present value for every $1.00 invested.

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Source: https://vastcalc.com/calculators/finance/npv
Category: Finance
Last updated: 2026-04-21