NPV Calculator

NPV stands for net present value. "Present value" means the worth today of money you'll receive later. "Net" means you subtract the initial cost. It's a core tool in corporate finance, real estate and project management for deciding whether a long-term investment is worthwhile. In medicine, the same letters mean negative predictive value, which is unrelated.

It discounts each future cash flow by your chosen rate for each year you must wait, then subtracts the upfront cost. At 5%, $30 received next year is worth $30 / 1.05 = $28.57 today, and $30 received in 2 years is worth $30 / 1.05 ^ 2 = $27.21. Add all the discounted cash flows and subtract your cost to get NPV.

Any NPV above zero means the project beats your discount rate. In practice, a thin margin isn't much comfort, because your cash flows are estimates. A project with an NPV of $5,000 on a $1 million investment could turn negative with a small miss. Look at the NPV relative to the investment, and test what happens if your forecasts fall short.

Use the return you could earn elsewhere for similar risk. Companies often use their weighted average cost of capital and add a premium for riskier projects. Individuals may use their expected investment return or their loan rate. There's no universal figure, so try a range. If a project only works at a very low rate, treat it with caution.

It means the project earns less than your discount rate, not necessarily that it loses money in raw dollars. A project can return more cash than it costs and still have a negative NPV if the money comes too slowly. It suggests you'd do better putting the money in the alternative represented by your discount rate.

NPV gives a dollar amount at a discount rate you choose. The internal rate of return (IRR) is the rate that would make NPV exactly zero, expressed as a percentage. If IRR is above your required rate, NPV is positive. They can disagree when comparing projects of different sizes or timing. In that case, NPV is generally considered the more reliable guide.

Excel's NPV function assumes the first cash flow comes one period from now, so leave out the upfront cost and subtract it separately. With a 5% rate in A1 and yearly cash flows in B1:B5, use =NPV(A1,B1:B5)-100. A common mistake is including today's cost inside the range, which discounts it and gives the wrong answer.

No. Present value is what future cash flows are worth today. Net present value goes one step further by subtracting what you pay to get them. In our example, the present value of the payments is $129.88, and the NPV is $29.88 after subtracting the $100 cost. If there's no upfront cost, the two numbers are the same.

Investors forecast rent, expenses and a sale price for each year of ownership, discount those cash flows and subtract the purchase cost and closing costs. This shows whether a property meets their required return, and it lets them compare a slow-paying rental with a quick flip. Rents and sale prices vary from year to year, so a spreadsheet is usually needed. For a quick check on a sale, try our real estate calculator.

Only through the numbers you enter. You can raise the discount rate for riskier projects, or test cautious cash flows. For inflation, be consistent: use nominal cash flows with a nominal discount rate, or inflation-adjusted cash flows with a real rate. Mixing them distorts the result. Also remember that NPV can't capture options like walking away early or expanding later.

It's sensitive to forecasts and the discount rate, both of which are estimates. It also favors big projects, since a large investment can have a high NPV and a poor return on each dollar. It says nothing about payback time or how much cash you need at the start. Use it alongside IRR, payback period and a plain-language look at what could go wrong.

It's how long it takes for the discounted cash flows to add up to your initial investment. It's always longer than the simple payback, because each later dollar counts for less. In the example, the simple payback is 3.3 years and the discounted payback is 3.7 years at 5%. If a project never reaches discounted payback within its life, its NPV is negative.

Yes. Discount each year's cash flow by its own number of years, then add them up and subtract the cost. Choose Different each year above and enter the amounts separated by commas, such as $20, $25, $30. Negative years work too, for a project that needs more money partway through.