NPV Calculator
Discount a series of future cash flows to their present value and see whether an investment creates or destroys value.
Example: A $50,000 initial investment returning $15,000 a year for 5 years, discounted at 8%, produces an NPV of $9,891 and an IRR of about 15.2% — meaning the investment clears an 8% hurdle rate with room to spare. Raise the discount rate to 16% and the NPV turns negative, signalling the project would destroy value at that required return.
NPV = Σ [CFₜ / (1 + r)ᵗ] − initial investment, the standard discounted cash flow formula.
How NPV, IRR and payback period are calculated
Net present value discounts every future cash flow back to today at your discount rate and subtracts the initial investment — a positive NPV means the investment is worth more than it costs at that rate. Internal rate of return is the discount rate at which NPV would be exactly zero, found numerically since there's no direct formula for it; a positive NPV at your chosen rate always means the true IRR is higher than that rate. Payback period is simpler still: it just tracks how many periods of undiscounted cash flow it takes to recoup the initial investment, ignoring the time value of money entirely.
The discount rate you choose is the single biggest driver of the result — it should reflect what the capital could otherwise earn at similar risk, typically the weighted average cost of capital for a business investment. NPV and IRR usually agree on accept/reject decisions for a single project, but can disagree when ranking mutually exclusive projects of different sizes — in that case NPV is the more reliable measure, since it reports value in actual currency rather than a rate. For comparing an investment's discounted return against its full cost including intangible or ongoing factors, see the Project Cost-Benefit calculator.
Frequently asked questions
- What counts as period 1?
- The first cash flow you enter — the initial investment happens at time zero, and each cash flow after that is discounted back from the end of its period.
- How is IRR calculated?
- IRR is the discount rate that makes NPV exactly zero — there's no formula that solves for it directly, so it's found numerically by searching for that rate. If your cash flows never turn a profit, no such rate exists and IRR is left blank.
- What does the payback period mean?
- How long it takes for the cumulative (undiscounted) cash flows to recoup the initial investment, including a fractional period if the payback happens partway through one. It's blank if the investment is never fully recouped.
- Can I use this in my own app?
- Yes — every calculator on Stupidly Clever has a matching REST API and MCP tool that runs the same underlying logic.
- What is net present value (NPV)?
- NPV is the sum of all future cash flows discounted back to today's value, minus the initial investment. A positive NPV means the investment returns more than the cost of capital; a negative NPV means it destroys value at the given discount rate.
- What discount rate should I use for NPV?
- Use the weighted average cost of capital (WACC) for business investments, or the required rate of return for personal or project decisions. The discount rate represents the opportunity cost of deploying the capital — what it could earn elsewhere at equivalent risk.
- What is the difference between NPV and IRR?
- NPV gives you an absolute value figure (in dollars/pounds) and tells you whether to accept or reject a project. IRR gives you the breakeven discount rate — the rate at which NPV = 0 — and you compare it against your hurdle rate. For mutually exclusive projects, NPV is more reliable because IRR can give misleading rankings when project sizes differ significantly.