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Net Present Value (NPV) Calculator for an Investment

Enter the upfront cost, the cash you expect each year, how many years and your discount rate to see if the project beats it.

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Formula

NPV = −I + C × (1 − (1 + r)^−n) ÷ r + S ÷ (1 + r)^n

  • I is the initial investment, C the cash flow each year, S the end value
  • r is the discount rate ÷ 100 and n the number of years
  • Cash arrives at the end of each year. At 0% the annuity factor is n.

The profitability index is the present value of inflows ÷ I.

Worked example

Invest 10,000 and receive 3,000 a year for 5 years at 10%:

  • Annuity factor: (1 − 1.1^−5) ÷ 0.1 = 3.790787
  • Present value of inflows: 3,000 × 3.790787 = 11,372.36
  • NPV: 11,372.36 − 10,000 = 1,372.36; index 1.14.

Frequently asked questions

What is net present value?

NPV is the value today of all future cash flows minus what you pay today, with later cash discounted at your required rate of return.

How is NPV calculated here?

NPV = -I + C × (1 - (1 + r)^-n) ÷ r + S ÷ (1 + r)^n, with I the investment, C the yearly cash flow, S the end value, r the rate and n the years.

What does a positive or negative NPV mean?

Positive means the project earns more than the discount rate; negative means less. Paying 10,000 to receive 3,000 a year for 5 years at 10% gives +1,372.36.

What is the profitability index?

It is the present value of inflows divided by the investment. Above 1 matches a positive NPV. In the example above, 11,372.36 ÷ 10,000 is 1.14.

How we calculate

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