NPV Calculator

Calculate Net Present Value to evaluate investment profitability with this free NPV calculator

What Is an NPV Calculator

An NPV calculator helps you decide if a business investment is worth making. NPV stands for Net Present Value, which compares what you pay today against future profits. The calculator adjusts future money to show what it's worth in today's dollars. This matters because getting $10,000 five years from now isn't as valuable as having $10,000 right now.

Input Fields Explained

Initial Investment

This is the upfront cost of your project. If you're buying equipment for $100,000 or launching a new product line for $250,000, enter that here. Include all startup costs—equipment, licenses, installation, training, and anything else you pay before earning money.

Discount Rate

This percentage represents what return you expect from investments. If you could safely earn 8% putting money in the stock market, that's your discount rate. Higher rates make future profits worth less in today's dollars. Risky projects should use higher rates, maybe 15-20%, because you need bigger rewards to justify the risk.

Expected Cash Flows

Enter the money you expect to receive each year from this investment. Year 1 might be $30,000, Year 2 could be $40,000, and so on. Be realistic, businesses rarely hit optimistic projections. You can add or remove years depending on how long the investment generates income.

Reading Your Results

Net Present Value

This is the main number that tells you if the investment makes sense. Positive NPV means you'll make more than your discount rate requires—go ahead with the project. Negative NPV means you'd do better investing elsewhere—reject it. Zero means you'll barely meet your minimum return requirement.

Total PV of Cash Inflows

This shows what all your future earnings are worth in today's money. If you expect $150,000 total over 5 years but the present value is only $113,000, that's because money received later is worth less. This number must exceed your initial investment for positive NPV.

Total Cash Inflows

This is the raw sum of all future cash flows without any discounting. It's useful for seeing total revenue, but don't make decisions based on this alone—it ignores the time value of money. A project could show $200,000 in total inflows but still have negative NPV.

Profitability Index

This ratio divides the present value of inflows by your initial investment. Numbers above 1.0 mean the project is profitable. A profitability index of 1.5 means you get $1.50 of present value for every $1.00 invested. This metric helps compare projects of different sizes.

Payback Period

This shows how many years until your cumulative cash flows equal your initial investment. Shorter payback periods mean less risk. If it shows "Not reached," your project never recovers the initial cost. Some investors won't touch anything with a payback over 3-5 years.

Investment Decision Box

This gives you a clear recommendation based on NPV. Green means accept—the project adds value. Red means reject—you'll lose money compared to alternative investments. The calculator removes emotion from the decision by sticking to math.

Present Value Analysis Chart

The bar chart compares actual cash flows to their present values. The gray bars show what you'll actually receive. The blue bars show you what those amounts are worth today. The gap between them reveals how much value time erodes.

Discounted Cash Flow Schedule

This table breaks down every year in detail. The discount factor shows how much a dollar received that year is worth today. Present value applies that factor to your cash flow. Cumulative PV tracks your running total, showing exactly when you break even.

Why NPV Beats Simple Math

Just adding up future profits and comparing them to costs ignores reality. A dollar next year isn't worth a full dollar today because of inflation and opportunity cost. You could invest that dollar elsewhere and earn returns.

NPV accounts for the fact that early cash flows are more valuable than late ones. Two projects might both promise $100,000 total, but the one paying out faster has a higher NPV. Getting money sooner lets you reinvest it.

This method also helps you compare wildly different investments on equal footing. Should you expand your factory or launch a new product? NPV converts everything to present value so you can see which creates more wealth.

Common Mistakes to Avoid

Using discount rates that are too low makes bad investments look good. If you pretend you only need 3% returns when you could safely earn 7% elsewhere, you'll approve money-losing projects.

Overly optimistic cash flow projections doom most NPV analyses. Real businesses face unexpected costs, delayed sales, and market changes. Cut your revenue estimates by 20% and see if NPV stays positive—that's a safer bet.

Forgetting to include all costs in the initial investment skews results. Shipping, installation, training, permits, and working capital all count. Missing a $20,000 expense could flip your NPV from positive to negative.

When to Use NPV

Use this for any major capital expenditure decision. Buying new equipment, opening locations, developing products, or acquiring companies all deserve NPV analysis. If you're spending significant money upfront for future returns, run the numbers.

NPV works great for comparing mutually exclusive projects. When you can only choose one option, pick the one with the highest NPV. That maximizes wealth creation even if other projects also show positive NPV.

Don't use NPV for projects where exact cash flows are impossible to estimate or where strategic value matters more than financial returns. Sometimes you invest in things because they're necessary, not because NPV says so.

Conclusion

NPV removes guesswork from investment decisions by converting everything to today's dollars. A positive result means the project beats your required return and deserves funding. Negative NPV means your money works harder elsewhere. Trust the math over gut feelings when choosing where to invest your capital.