NPV calculator
Net present value is the sum of an investment's future cash flows discounted back to today, less the initial outlay. A positive NPV means the project creates value at the discount rate you chose; a negative one means the same money would be better placed elsewhere.
- Present value of the flows
- €1,243.43
- Undiscounted total
- €500.00
- Periods
- 3
Rates and thresholds
- Formula
- NPV = Σ CFₜ / (1 + r)ᵗ − C₀
- Discount factor
- 1 / (1 + r)ᵗ
- NPV > 0
- The project creates value
- NPV = 0
- The return equals the discount rate — that is the IRR
What discount rate should you use?
The discount rate should reflect what the same money would earn elsewhere at the same risk. For company projects the weighted average cost of capital is the usual choice; for an individual, the interest rate on the loan funding the investment, or the expected return on the alternative, is a reasonable starting point. NPV is highly sensitive to this rate, so it is worth running the calculation at several and seeing where the sign flips.
What is the difference between NPV and IRR?
NPV gives its answer in euros and needs a discount rate supplied up front. IRR is the discount rate at which NPV comes out exactly zero, and is expressed as a percentage. For comparing projects NPV is the more reliable of the two because it accounts for scale: a ten-euro investment returning 100 per cent beats a million-euro investment returning 15 per cent on IRR, even though the second makes far more money.
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