What is Net Present Value (NPV)?

NPV is the difference between the present value of cash inflows and outflows over a period of time, used to assess investment profitability.

How is NPV calculated?

NPV sums each future cash flow discounted back to its present value using a specified discount rate, then subtracts the initial investment.

What does a positive or negative NPV indicate?

A positive NPV means the investment is expected to generate profit above the required return, while a negative NPV indicates a loss or subpar return.

What is the discount rate in NPV calculations?

The discount rate represents the required rate of return or cost of capital used to discount future cash flows.

What is the difference between fixed and varying cash flows?

Fixed cash flows remain constant each year, while varying cash flows differ annually, reflecting irregular income or expenses.

What is the Profitability Index (PI)?

PI equals the ratio of the present value of inflows to the initial investment. A PI above 1 indicates an acceptable project.

What happens if the discount rate is 0%?

With a 0% discount rate, future cash flows are not discounted, so NPV equals the total inflows minus the initial investment.

NPV Calculator – Net Present Value with Discount Rate & Profitability Index

NPV Calculator

Compute Net Present Value from an initial investment, a discount rate, and either fixed or varying cash flows by year.

Initial Investment

Cash Flow Mode

Same cash flow every year for N years.

Discount Rate (annual)

Number of Years

Cash Flow per Year

Cash Flows by Year

Results

Net Present Value (NPV) $
PV of Inflows $
Initial Investment $
Profitability Index
Decision

This NPV Calculator computes the Net Present Value of an investment based on its initial investment, cash flows, discount rate, and time period. It helps evaluate whether a project is financially viable by comparing the present value of expected inflows with the cost of investment.

Introduction

The calculator supports two modes: Fixed Each Year (same annual cash flow) and Varying by Year (different cash flows per year). Inputs include Initial Investment, Discount Rate (annual), Number of Years, and Cash Flow per Year (or per year list).

The standard NPV formula is:

where CFt is the cash flow in year t, r is the discount rate, and I0 is the initial investment.

How to Use the NPV Calculator

Use these steps to calculate an investment’s Net Present Value and make an informed accept-or-reject decision.

Enter the Initial Investment
Input the upfront cost or capital required (e.g., $10,000).
Select Cash Flow Mode
Choose Fixed Each Year for equal annual inflows, or Varying by Year for custom amounts.
Input Discount Rate (annual)
Provide the required rate of return or cost of capital (e.g., 10%).
Set Number of Years
Define how long the investment generates returns (e.g., 5 years).
Enter Cash Flow per Year
Type the annual cash inflow; if varying, fill each year's specific value.
Enable “Show decimals”
Toggle if you want precise decimal results.
Review Results
The tool displays Net Present Value (NPV), Present Value of Inflows, Profitability Index, and Decision (Accept/Reject).
The Profitability Index (PI) is given by:
The investment is accepted if NPV > 0 or PI > 1.

Frequently Asked Questions

NPV is the difference between the present value of cash inflows and outflows over a period of time, used to assess investment profitability.
NPV sums each future cash flow discounted back to its present value using a specified discount rate, then subtracts the initial investment.
A positive NPV means the investment is expected to generate profit above the required return, while a negative NPV indicates a loss or subpar return.
The discount rate represents the required rate of return or cost of capital used to discount future cash flows.
Fixed cash flows remain constant each year, while varying cash flows differ annually, reflecting irregular income or expenses.
PI equals the ratio of the present value of inflows to the initial investment. A PI above 1 indicates an acceptable project.
With a 0% discount rate, future cash flows are not discounted, so NPV equals the total inflows minus the initial investment.

Methodology & Sources

The NPV calculator evaluates the net benefit of an investment by discounting future cash flows to their present value and subtracting the initial investment.

Formula (fixed annual cash flows):

Where:

NPV: Net Present Value
CF: Annual cash flow
r: Discount rate (as decimal)
n: Number of years
I0: Initial investment

Present Value of Inflows (PV):

Profitability Index (PI):

Decision Rule:

If NPV > 0 → Accept the project
If NPV < 0 → Reject the project

Assumptions:

Cash flows occur at year-end.
Discount rate remains constant.
All values in USD; round to two decimals.

Edge Cases:

r = 0: No discounting.
n = 0: NPV undefined (no time period).
Negative cash flows: Represent outflows and reduce NPV.

Modes Supported:

Fixed Each Year
Varying by Year

Bibliography

MIT OpenCourseWare (2023). Time Value of Money and Discounted Cash Flow Analysis — Massachusetts Institute of Technology https://ocw.mit.edu
Accessed 2025-10-27
Investopedia Editorial Team (2024). Net Present Value (NPV) — Investopedia https://www.investopedia.com/terms/n/npv.asp
Accessed 2025-10-27
U.S. Department of Energy, Federal Energy Management Program (2022). Discounted Cash Flow Analysis — U.S. Department of Energy https://www.energy.gov/femp/discounted-cash-flow-analysis
Accessed 2025-10-27

NPV Calculator

Results

Introduction

How to Use the NPV Calculator

Enter the Initial Investment

Select Cash Flow Mode

Input Discount Rate (annual)

Set Number of Years

Enter Cash Flow per Year

Enable “Show decimals”

Review Results

Frequently Asked Questions

Methodology & Sources

Bibliography

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Internal Rate of Return (IRR) Calculator