Enter Your Cash Flows
Initial cost is negative; each year is a net cash inflow.
Net Present Value
$0.00
Calculate the Net Present Value of an investment from an initial cost, a discount rate, and up to 5 years of future cash flows.
Initial cost is negative; each year is a net cash inflow.
$0.00
Discount each future cash flow back to today's value using the discount rate, sum those present values, then subtract the initial investment. A positive NPV means the investment is expected to earn more than the discount rate used.
NPV = Σ [CFⁿ / (1 + r)ⁿ] − Initial Investment
Net Present Value (NPV) is a core capital budgeting metric that measures whether an investment is expected to create value once the time value of money is accounted for. Because a dollar received in the future is worth less than a dollar today (it could otherwise be invested and earn a return), NPV discounts every future cash flow back to today's terms before comparing it against the upfront cost.
An investment costing $10,000 today, discounted at 10%, expected to return $3,000 in year 1 and $4,000 in year 2:
PV Year 1 = $3,000 / (1.10)¹ = $2,727.27
PV Year 2 = $4,000 / (1.10)² = $3,305.79
NPV = $2,727.27 + $3,305.79 − $10,000 = −$3,966.94
A negative NPV here means the two-year cash flows don't recover the initial cost at a 10% required return — additional future years of cash flow (as modeled in the calculator above) would be needed to turn it positive.
Payback period simply asks how long it takes to recover the initial cost, ignoring both the time value of money and any cash flows after the payback point. NPV captures the full picture: it discounts every cash flow across the entire project life and reflects the actual value created, which is why NPV is generally considered the more theoretically sound metric for comparing investments, even though payback period remains popular for its simplicity.
The discount rate should reflect the return you could reasonably expect from an alternative investment of similar risk — for a business, this is often the weighted average cost of capital (WACC); for a personal investment decision, it might be a target return you'd expect from the stock market or another comparable opportunity. Using a discount rate that's too low overstates the attractiveness of an investment; too high understates it, so it's worth testing the NPV at a few different rates to see how sensitive the result is.
NPV is the sum of all future cash flows from an investment, each discounted back to today's value, minus the initial cost. A positive NPV means the investment is expected to add value above the discount rate used; a negative NPV means it is expected to destroy value.
The discount rate typically reflects the investment's required rate of return or cost of capital, often the weighted average cost of capital (WACC) for a business, or a personal hurdle rate representing the return you could earn elsewhere at similar risk.
Among mutually exclusive projects of similar risk and scale, a higher NPV is generally preferred since it represents more value created above the discount rate. NPV should still be considered alongside risk, project size, and strategic fit.
Comparing a growth rate instead of a dollar value? Try the CAGR Calculator or the ROI Calculator.
Explore other PraxisCalc tools related to this topic.