Published 2026-01-03 · Last updated 2026-02-08 · Reviewed by Valzura Editorial Team
NPV Calculator
See what a stream of future cash flows is worth in today's dollars.
Net present value (NPV) is the value of an investment's future cash flows in today's dollars, minus the initial cost. Each cash flow is discounted at your required rate of return, so a dollar received in year five counts for less than a dollar received in year one. A positive net present value means the investment earns more than your discount rate and creates value; a negative one means the money would work harder elsewhere.
Cash paid out today (year 0).
Your required annual return, or the weighted average cost of capital.
Yearly cash flows
Cash received at the end of each year. Add up to 10 years.
Net Present Value
$12,215
Positive: the investment beats a 12% required return and creates value.
The net present value formula
Each year's cash flow is divided by (1 + r) raised to the year number, where r is the discount rate. That divisor grows quickly: at a 12 percent rate, a dollar due in year one is worth about 89 cents today, while a dollar due in year five is worth only 57 cents. Summing the discounted cash flows and subtracting the upfront cost leaves the value the investment adds over and above your required return.
Choosing the right discount rate
The discount rate is your opportunity cost: the return the same money could earn elsewhere at similar risk. Corporations discount projects at their blended financing cost, which you can estimate with the weighted average cost of capital calculator. Individual buyers evaluating a small business typically apply 15 to 30 percent, because private company cash flows carry owner dependence, customer concentration, and liquidity risk that public stocks do not. Raising the rate is the correct response to shakier projections; it forces the deal to prove itself.
A worked example at a 12 percent hurdle
Say a 150,000 dollar investment should produce 45,000 dollars a year for five years, and your required return is 12 percent. Discounting each year's cash flow and adding them up gives a present value of about 162,215 dollars. Subtract the 150,000 dollar cost and the net present value is roughly 12,215 dollars. The investment clears the 12 percent hurdle with value to spare; at a 16 percent rate the same cash flows would fall short, which is exactly the sensitivity the calculator above lets you test.
The decision rule, and where it needs help
The rule itself is simple: accept when the result is positive, decline when it is negative, and treat zero as break-even against your required return. The caveat is that net present value is a dollar figure, so a 5 million dollar project will usually post a bigger number than a 500,000 dollar one even if the smaller deal works its capital harder. Running the same series through the internal rate of return calculator adds the efficiency view, and together the two settle most capital budgeting questions.
Net present value is how businesses get valued
A company's intrinsic value is simply the net present value of all the cash it will generate for its owners, which is the logic behind the discounted cash flow method that professional appraisers run alongside market multiples. Our guide to business valuation methods walks through how the approaches fit together, and you can estimate a business's value in minutes using the same discounting principles applied to your own numbers.
Frequently Asked Questions
What does a positive NPV mean?
A positive net present value means the investment is expected to earn more than the discount rate you applied. If you discount at 12 percent and the result is positive, the deal beats a 12 percent return. At exactly zero, the investment earns precisely your discount rate, no more and no less.
What discount rate should I use for NPV?
Use your opportunity cost of capital: the return you could earn on an alternative investment of similar risk. Companies typically use their weighted average cost of capital, while individual buyers of small businesses often apply 15 to 30 percent to reflect the higher risk. A higher rate produces a lower, more conservative net present value.
Is a higher NPV always better?
Between two investments of similar size and risk, the higher net present value creates more value. But it is a dollar figure, not a rate, so a large project can show a bigger figure while earning a weaker return on each dollar invested. Pair it with the internal rate of return to compare efficiency.
What is the difference between NPV and IRR?
Net present value tells you how many dollars of value an investment creates at a chosen discount rate. The internal rate of return tells you the percentage rate the cash flows actually earn. They answer different questions from the same cash flows, and analysts usually look at both together.
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