Free net present value calculator for capital budgeting. Evaluate projects with unequal cash flows, compare alternatives, and make accept/reject decisions using NPV analysis.
Net Present Value (NPV) is the gold standard of capital budgeting. It calculates the difference between the present value of all future cash flows and the initial investment. If NPV > 0, the project creates value; if NPV < 0, it destroys value.
Unlike payback period, NPV considers all cash flows over the project's life and accounts for the time value of money. Unlike IRR, NPV doesn't have the reinvestment rate problem and always gives a correct answer for mutually exclusive projects.
This calculator supports unequal cash flows, compares two projects side-by-side, and includes sensitivity analysis on the discount rate. By discounting all future cash flows back to their present value and subtracting the initial investment, NPV gives you a single number that represents the true economic value a project adds to the business. A positive NPV means the project earns more than the required return on capital, while a negative NPV means you would be better off investing the money elsewhere. Side-by-side comparison is especially valuable when capital is limited and multiple projects compete for funding.
NPV directly measures value creation in dollar terms. A project with NPV of $500K adds exactly $500K to the firm's value (in theory). This makes NPV the most reliable method for comparing projects of different sizes, durations, and cash flow patterns. When capital is limited, NPV analysis ensures every dollar goes to the project that creates the most value.
NPV = − Initial Investment + Σ [CFₜ / (1 + r)ᵗ] Decision Rule: NPV > 0 → Accept; NPV < 0 → Reject; For mutually exclusive projects → Choose highest NPV
Result: NPV: $18,762 → Accept
PV of cash flows: $53,571 + $55,804 + $56,943 + $57,196 = $223,514. Subtract $200K investment: NPV = $23,514. This positive NPV means the project earns more than the 12% required return and creates $23.5K in value.
An NPV profile plots NPV against different discount rates. At 0% discount, NPV = sum of cash flows − investment. As the rate increases, NPV decreases. The rate where NPV = 0 is the IRR. This visualization helps understand how sensitive the project is to the discount rate.
Be consistent: if cash flows are in real terms (inflation-adjusted), use a real discount rate. If cash flows are nominal (include inflation), use a nominal rate. Mixing real flows with nominal rates (or vice versa) produces incorrect NPV.
NPV assumes intermediate cash flows are reinvested at the discount rate. IRR assumes reinvestment at the IRR itself. For most companies, the discount rate is closer to reality, making NPV's assumption more reasonable — another reason to prefer NPV over IRR.
Use WACC for average-risk company projects. For riskier projects, add a risk premium (WACC + 2-5%). For personal investments, use your opportunity cost (what you could earn elsewhere). The discount rate should reflect the risk of the specific cash flows being evaluated.
NPV is theoretically superior for several reasons: (1) it always gives the correct accept/reject answer for mutually exclusive projects, (2) it doesn't suffer from multiple IRR problems with non-conventional cash flows, (3) it directly measures value creation in dollars. For these reasons, most finance textbooks and practitioners recommend NPV as the primary decision tool.
Yes, and it means the project destroys value. The cash flows, when discounted, are worth less than the investment. Unless there are strategic reasons (market entry, defensive investment), negative NPV projects should be rejected.
For projects with different durations, use: (1) Equivalent Annual Annuity (EAA) — convert NPV into an annual amount for comparison, (2) Replacement chain — repeat the shorter project to match the longer one, (3) Compare NPV directly if the projects aren't being replaced/repeated. Choosing the right approach depends on whether the projects are ongoing operational needs or one-time investments.
No. Sunk costs are already spent and cannot be recovered. They shouldn't influence forward-looking decisions. Only include incremental cash flows — cash flows that change as a direct result of accepting the project.
Any positive NPV is good — it means the project earns more than the required return. But bigger is generally better if you have limited capital. When capital is constrained, use the Profitability Index (NPV/Investment) to rank projects and maximize total value created.