Net Present Value, or NPV, is the standard test for whether an investment, project or business decision is worth the money.
About this calculator
Net Present Value, or NPV, is the standard test for whether an investment, project or business decision is worth the money. It takes a stream of future cash flows, discounts them at a rate that reflects your required return, and tells you in today's money whether the project is worth more than what it costs. A positive NPV means the project beats your required return; a negative NPV means you're better off keeping your money or investing somewhere else. Alongside NPV, this tool also computes IRR (Internal Rate of Return), which is the discount rate at which NPV becomes zero. Comparing IRR with your hurdle rate gives a quick sanity check, and the Profitability Index tells you the value generated per rupee invested.
Common uses
- Evaluating a new business or expansion plan before committing capital.
- Comparing two investment projects with different cash flow patterns.
- Deciding whether to buy machinery, software or property based on expected savings.
- Pricing a long-term contract or bid using expected yearly inflows.
- Education and finance interviews -- core DCF and capital budgeting concept.
Frequently asked questions
What discount rate should I use?
Use your required rate of return -- often the cost of capital (WACC) for a business, or your expected return from a similar-risk investment for a personal decision.
What does it mean when NPV is exactly zero?
It means the project earns exactly your required return -- nothing more, nothing less. The IRR equals your discount rate.
Should I always pick the project with the higher NPV?
Usually yes, because NPV measures absolute value created. But if you have a tight capital budget, also look at the Profitability Index to see value per rupee invested.
Why does my NPV look very different at 8% versus 15%?
Higher discount rates penalize far-future cash flows much more, so projects with long payback periods see NPV fall sharply as the rate rises.
Is IRR always reliable?
IRR can give multiple values when cash flows change sign more than once. NPV is more reliable in such cases -- always read NPV first, then IRR.