NPV Calculator Calculate Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period for investment projec...
NPV Calculator
Calculate Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period for investment projects.
Net Present Value (NPV)** is the sum of all cash flows (inflows and outflows), discounted to today’s dollars using a required rate of return.
Formula**:
$$\text{NPV} = \sum_{t=0}^{n} \frac{CF_t}{(1 + r)^t}$$
Where: • $CF_t$ = Cash flow at time $t$ • $r$ = Discount rate (WACC, hurdle rate) • $t$ = Time period (0 = today)
Decision Rule**:
- NPV > 0 → Accept project (adds value)
- NPV < 0 → Reject project (destroys value)
- NPV = 0 → Indifferent (earns exactly the discount rate)
⚠️ While IRR is popular, it has dangerous flaws:
- Multiple IRRs** — Projects with alternating +/− cash flows can have >1 IRR.
- Reinvestment Assumption** — IRR assumes interim cash flows reinvest at IRR (often unrealistic).
- Scale Ignorance** — A $1,000 project at 50% IRR = $500 profit; a $1M project at 15% = $150K. NPV picks the better value.
✅ NPV is theoretically superior** — it uses market-based discount rates and measures *value added* in dollars.
✅ Use IRR only as a complement** — e.g., “This project earns 15.2% IRR — above our 10% hurdle.”
| Project Type | Typical Discount Rate |
|---|---|
| Low-Risk (Gov’t Bonds) | 4–5% |
| Corporate WACC (S&P 500) | 7–9% |
| Small Business Expansion | 10–15% |
| Startup / High-Risk Tech | 15–30%+ |
📉 Sensitivity Insight**:
- If your NPV is positive but small, run a sensitivity analysis.
- A project with NPV = $1K at 10% may be negative at 10.5% — too risky!
- Always test ±2% around your base discount rate.
➡️ Single Project
Enter initial investment (negative), future cash flows, and discount rate. Get NPV, IRR, and payback.
➡️ Compare Projects
Compare two mutually exclusive projects (e.g., Machine A vs. B).
➡️ Sensitivity Analysis
See how NPV changes as discount rate varies — find the IRR visually.
➡️ Payback Period
Simple (undiscounted) and discounted payback — when do you recover your investment?
Note: Cash flows should be *after-tax*. For depreciation tax shields, add back: Depreciation × Tax Rate.