NPV Calculator

Q: What is Net Present Value (NPV)?

Net Present Value is the sum of all future cash flows discounted to their present value, minus the initial investment. NPV = Σ[CF_t / (1+r)^t] − C₀. A positive NPV means the investment generates more value than its cost of capital; a negative NPV means it destroys value. NPV is the gold standard for investment appraisal in corporate finance.

Q: What is the NPV formula?

NPV = CF₁/(1+r)¹ + CF₂/(1+r)² + … + CF_T/(1+r)^T − C₀, where CF_t is the cash flow in period t, r is the discount rate, T is the number of periods, and C₀ is the initial investment (outflow at time 0). Each future cash flow is divided by (1+r)^t to convert it to today's money value.

Q: What discount rate should I use for NPV?

The discount rate should reflect your opportunity cost of capital - the return you could earn on an alternative investment of similar risk. For a business project, use the WACC (Weighted Average Cost of Capital). For personal investments, use your required rate of return. A riskier project warrants a higher discount rate. Most corporate projects use a discount rate of 8–15%.

Q: What does NPV tell you about an investment?

NPV tells you how much value the investment creates (or destroys) in today's money terms. A positive NPV of ₹50,000 means the investment returns ₹50,000 more in present value terms than your required rate of return. NPV = 0 means the investment just meets your required return. NPV < 0 means even discounting at your minimum acceptable rate, the project falls short.

Q: What is the Profitability Index (PI)?

Profitability Index = PV of all future cash inflows ÷ Initial Investment. PI > 1 means accept (same decision as positive NPV). PI = 1 means NPV = 0 (break even at the discount rate). The advantage of PI over NPV is that it normalizes for project size - useful when comparing a small ₹1M project with PI=2.0 against a large ₹100M project with PI=1.1 under capital rationing.

Determine whether a project or investment creates value by calculating its Net Present Value.

NPV What is Net Present Value?

Net Present Value (NPV) is the difference between the present value of future cash inflows and the initial investment outlay. It answers the question: “If I invest money today, do the future cash flows I receive — discounted to their present value — exceed what I spent?” A positive NPV means yes: the project creates value. A negative NPV means the project earns less than your required rate of return and destroys value.

The concept of present value is central: a rupee received today is worth more than a rupee received in the future, because today’s rupee can be invested to earn returns. The discount rate converts future cash flows to their equivalent value in today’s rupees. The higher the discount rate, the more heavily future flows are penalized, and the lower the NPV.

NPV is the gold standard for capital budgeting decisions in corporate finance. When a company evaluates whether to build a new factory, launch a product, or acquire another business, it projects the future cash flows the investment will generate, discounts them at its cost of capital (WACC), and compares to the upfront cost. If NPV > 0, the project is expected to increase shareholder value.

For individual investors, NPV is equally useful: evaluating whether to buy a rental property (future rents discounted at your required return vs. purchase price), a franchise, or any other investment with predictable income streams. The Profitability Index (PV of inflows ÷ initial investment) is particularly useful when comparing projects of different sizes or when capital is limited — it tells you the value created per rupee invested.

📐 Formula

NPV = ∑_t=1^T [CF_t ÷ (1 + r)^t] − C₀

CF_t = Cash flow in period t (positive = inflow, negative = outflow)

r = discount rate per period (e.g., 0.10 for 10%)

t = period number (1 = year 1, 2 = year 2, etc.)

C₀ = initial investment at time 0

Example: C₀=₹1,00,000 · r=10% · CFs: ₹30,000/yr for 5 yrs

PV = 30,000/1.1 + 30,000/1.21 + 30,000/1.331 + 30,000/1.464 + 30,000/1.611 = ₹1,13,724

NPV = 1,13,724 − 1,00,000 = +₹13,724 → Accept

Profitability Index = PV of Inflows ÷ Initial Investment

PI > 1: Accept · PI = 1: Indifferent · PI < 1: Reject

PI ranks projects when capital is rationed - higher PI = better value per rupee invested

📖 How to Use This Calculator

Steps

Enter the initial investment — the total upfront cost at time 0 (always a positive number; the calculator treats it as an outflow).

Enter the discount rate as a percentage — your required rate of return or cost of capital (e.g., 10 for 10%/year).

Enter cash flows one per line (or comma-separated): Year 1 cash flow first, Year 2 second, etc. Enter negative values for years with additional outflows.

Click Calculate. NPV shown in green (positive) or red (negative), plus PV of inflows, total cash flows, profitability index, and Accept/Reject recommendation.

💡 Example Calculations

Example 1 — Manufacturing Equipment

Investment: ₹5,00,000. Discount rate: 12%. Cash flows: ₹1,20,000/yr for 6 years.

PV = 1,20,000 × annuity factor (6 years, 12%) = 1,20,000 × 4.1114 = ₹4,93,368

NPV = 4,93,368 − 5,00,000 = −₹6,632

NPV = −₹6,632 → Reject. The project falls just short of the 12% hurdle rate. Try at 11%: NPV becomes positive.

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Example 2 — Software Project

Investment: $50,000. Discount rate: 8%. Cash flows: $15k, $20k, $25k, $20k (4 years).

PV = 15,000/1.08 + 20,000/1.1664 + 25,000/1.259712 + 20,000/1.36049 = 13,889 + 17,147 + 19,845 + 14,701 = $65,582

NPV = 65,582 − 50,000 = +$15,582. PI = 65,582/50,000 = 1.31

NPV = +$15,582 → Accept. Profitability Index 1.31 - the project returns $1.31 per dollar invested.

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Example 3 — Rental Property

Purchase: ₹50 lakhs. Required return: 10%. Rental income: ₹4L/yr for 10 years + ₹60L resale.

Enter 10 cash flows: years 1–9 = 400,000 each; year 10 = 400,000 + 6,000,000 = 6,400,000.

PV of 9 annual rents + discounted resale value ≈ ₹46.02L. NPV = 46.02L − 50L = −₹3.98L

NPV = −₹3.98L → Reject at 10% required return. The property would need a higher rent or lower purchase price to be attractive at this rate.

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Example 4 — Comparing Two Projects

Project A: invest $10,000, get $3,500/yr for 5 years at 10%. Project B: invest $50,000, get $15,000/yr for 5 years at 10%.

NPV A = 3,500 × 3.7908 − 10,000 = 13,268 − 10,000 = +$3,268. PI A = 1.327.

NPV B = 15,000 × 3.7908 − 50,000 = 56,862 − 50,000 = +$6,862. PI B = 1.137.

Project B has higher NPV but Project A has higher PI. If capital is rationed, choose A (more value per dollar). If unlimited capital, choose both (both positive NPV).

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Frequently Asked Questions

What is Net Present Value (NPV)?+

Net Present Value is the sum of all future cash flows discounted to their present value, minus the initial investment. NPV = Σ[CF_t / (1+r)^t] − C₀. A positive NPV means the investment generates more value than its cost of capital; a negative NPV means it destroys value. NPV is the gold standard for investment appraisal in corporate finance.

What is the NPV formula?+

NPV = CF₁/(1+r)¹ + CF₂/(1+r)² + … + CF_T/(1+r)^T − C₀, where CF_t is the cash flow in period t, r is the discount rate, T is the number of periods, and C₀ is the initial investment (outflow at time 0). Each future cash flow is divided by (1+r)^t to convert it to today's money value.

What discount rate should I use for NPV?+

The discount rate should reflect your opportunity cost of capital - the return you could earn on an alternative investment of similar risk. For a business project, use the WACC (Weighted Average Cost of Capital). For personal investments, use your required rate of return. A riskier project warrants a higher discount rate. Most corporate projects use a discount rate of 8–15%.

What does NPV tell you about an investment?+

NPV tells you how much value the investment creates (or destroys) in today's money terms. A positive NPV of ₹50,000 means the investment returns ₹50,000 more in present value terms than your required rate of return. NPV = 0 means the investment just meets your required return. NPV < 0 means even discounting at your minimum acceptable rate, the project falls short.

What is the Profitability Index (PI)?+

Profitability Index = PV of all future cash inflows ÷ Initial Investment. PI > 1 means accept (same decision as positive NPV). PI = 1 means NPV = 0 (break even at the discount rate). The advantage of PI over NPV is that it normalizes for project size - useful when comparing a small ₹1M project with PI=2.0 against a large ₹100M project with PI=1.1 under capital rationing.

How is NPV different from IRR?+

NPV is the absolute value created in today's rupees. IRR (Internal Rate of Return) is the discount rate that makes NPV = 0 - it is a percentage return. NPV is generally preferred because it directly measures value creation and accounts for scale. IRR can give misleading rankings when projects have different scales or non-conventional cash flows (multiple sign changes). When NPV and IRR conflict, follow NPV.

How does NPV handle negative cash flows in middle years?+

Enter negative values for outflows in any period. The formula treats them identically - negative cash flows are discounted and subtracted from the sum. For example, if a project requires additional capital in year 3, enter that as a negative cash flow in the year-3 position. Only the initial investment (at time 0) is entered separately in this calculator.

What is the difference between NPV and payback period?+

Payback period = the number of years to recover the initial investment from undiscounted cash flows. It ignores the time value of money and ignores cash flows beyond the payback date. NPV is superior for decision-making: it discounts all cash flows and measures total value creation. The discounted payback period improves on the simple payback period by using discounted cash flows.

What is a good NPV?+

Any positive NPV is 'good' - it means the project creates value above your required rate of return. The higher the NPV, the better. When comparing mutually exclusive projects, choose the one with the highest NPV. When ranking independent projects under capital constraints, use the Profitability Index to maximize total NPV per rupee invested.

How do I calculate NPV in Excel?+

=NPV(rate, CF1, CF2, …, CFn) − InitialInvestment. The Excel NPV function discounts flows starting at period 1, so you subtract the initial investment (period 0) separately. Example: =NPV(0.10, 5000, 6000, 7000) − 15000 for a ₹15,000 investment with 3 years of inflows at a 10% discount rate.

🔗 Related Calculators

What is Net Present Value (NPV)?

What is the NPV formula?

What discount rate should I use for NPV?

What does NPV tell you about an investment?

What is the Profitability Index (PI)?

How is NPV different from IRR?

How does NPV handle negative cash flows in middle years?

What is the difference between NPV and payback period?

What is a good NPV?

How do I calculate NPV in Excel?

📌 Quick Tips

💡A positive NPV means the project returns more than your required rate of return (discount rate) - it creates value. A negative NPV means the project destroys value at that discount rate.

💡The discount rate is your opportunity cost of capital - what return you could earn on an alternative investment of similar risk. Use your WACC (Weighted Average Cost of Capital) for business projects.

💡The Profitability Index (PI = PV of inflows / initial investment) lets you compare projects of different sizes. PI > 1 means accept; PI < 1 means reject. Rank projects by PI when capital is rationed.

💡NPV assumes cash flows are reinvested at the discount rate. If that assumption is unrealistic, consider using MIRR (Modified Internal Rate of Return) instead.

💡Enter cash flows as positive numbers for inflows (revenue) and negative numbers for outflows (costs) in each period. The initial investment is entered separately and is treated as an outflow at time 0.