NPV Calculator

NPV is the sum of all future cash flows from an investment, each discounted to today's value using a chosen discount rate, minus the initial cost. Positive NPV means the investment beats the discount rate (creates value); negative NPV means it underperforms. NPV is one of the most rigorous ways to compare projects with different timing and size.

The discount rate should reflect the opportunity cost - what you could otherwise earn at similar risk. Common choices: cost of capital for a business (often 8%–12%), expected market return for personal investments (~7%–10%), or risk-free rate (3-month T-bill, currently around 4.5%) for very safe cash flows. Higher discount rates penalize distant cash flows more heavily.

Internal Rate of Return (IRR) is the discount rate at which NPV equals zero - essentially the project's implicit annualized return. If IRR exceeds your required return, the project is attractive. NPV and IRR usually agree on accept/reject decisions but can disagree when ranking mutually exclusive projects; in those cases NPV is the better tie-breaker.

Money sooner is worth more than the same money later because it can be invested. At a 10% discount rate, $1,000 received in 10 years is worth only about $386 today. NPV makes this tradeoff explicit, which is why it favors projects with earlier cash flows - even if total nominal cash flow is identical.