NPV Calculator
🏠 Free ToolCalculate net present value (NPV), internal rate of return (IRR), and payback period for any investment. Add or remove yearly cash flows, adjust the discount rate, and visualize the results.
How it Works
The NPV calculator helps investors and business managers evaluate whether a project or investment creates value. Enter your initial investment, expected annual cash flows, and discount rate to see the net present value instantly.
The calculator also approximates the Internal Rate of Return (IRR) using a bisection method, giving you the effective annual return of the investment. If the IRR exceeds your hurdle rate, the project adds value.
The payback period shows how quickly you recover your initial investment from the cash flows. Combined with NPV and IRR, these three metrics give a comprehensive view of investment viability.
The cash flow chart visually compares nominal cash flows against their discounted present values, illustrating how the time value of money reduces the worth of future payments. You can dynamically add or remove years to model any project duration.
Frequently Asked Questions
What is Net Present Value (NPV)?
NPV is the sum of all future cash flows discounted to their present value, minus the initial investment. A positive NPV means the investment is expected to generate more value than it costs, making it worthwhile at the given discount rate.
What is the Internal Rate of Return (IRR)?
IRR is the discount rate that makes the NPV equal to zero. It represents the annualized effective return of the investment. If the IRR exceeds your required rate of return, the investment is attractive.
How is the payback period calculated?
The payback period is the time it takes for cumulative cash flows to recover the initial investment. This calculator uses simple (undiscounted) payback. A shorter payback period means faster capital recovery and lower risk.
What discount rate should I use?
The discount rate should reflect your cost of capital or required rate of return. Common choices include WACC (for corporate projects), expected market returns (for personal investments), or the risk-free rate plus a risk premium.
When should I use NPV vs IRR?
Use NPV when comparing projects of different sizes or durations — it gives absolute value created. Use IRR for a quick efficiency metric. When they conflict, NPV is generally considered more reliable for decision-making.
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