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NPV Calculator

Work out the net present value of an investment from its cash flows and discount rate, with IRR, payback and a year-by-year table. Enter what it costs today, what it brings in each year, quarter or month, and the return you need.

How the net present value calculator works

Net present value is what a stream of future cash flows is worth today, less what the investment costs today. Each cash flow is divided by (1 + rate) raised to the number of periods until it arrives, and the results are added up: NPV = −investment + CF₁ ÷ (1 + r) + CF₂ ÷ (1 + r)² + … + CFₙ ÷ (1 + r)ⁿ.

Say a plant buys a $120,000 machine that saves $30,000 in the first year, $35,000 in the second and $40,000 in each of years three to five, and the plant wants a 10% return. The five savings are worth $138,408.33 today, so the NPV is $18,408.33: the machine earns more than 10%. Press "Load the example" to see the table.

Reading the result: NPV, IRR, payback and profitability index

A positive NPV means the investment returns more than the discount rate; negative means less; zero means exactly the rate. The internal rate of return (IRR) is the rate at which the NPV is zero, 15.5% in the example. The profitability index divides the present value of the cash flows by the investment: 1.15 here, and anything above 1 adds value.

Payback is how long the cash flows take to repay the investment: 3.4 years in the example, counting the year-four savings as coming in evenly. Discounted payback does the same with present values, so it takes longer: 4.3 years. When the cash flows change sign more than once (a big repair in year three, say), there can be two IRRs or none; the page tells you, and the NPV is the number to trust.

NPV in Excel: why NPV() gives a different number

Excel's NPV function treats its first value as arriving one period from now, so it discounts it. If you put today's investment inside the function, Excel discounts that too and the answer is off. Microsoft's own advice is to leave the up-front amount out and add it to the result: =NPV(10%, B2:B6) − 120000 gives the same $18,408.33 as this page.

IRR() in Excel takes the whole series, investment included, as one range: =IRR(B1:B6) with −120000 in B1.

End or start of the period, and monthly cash flows

By default each cash flow arrives at the end of its period, which is how most business cases and Excel count. Switch to the start of the period for rent, subscriptions or anything paid in advance: each flow is then discounted one period less and the NPV rises ($32,249.16 for the example).

Choose quarters or months for shorter projects. You still type the rate per year; the page turns it into the equivalent rate per period (12% a year is about 0.949% a month) and shows the IRR both per period and per year, so nothing changes because of the period you picked.

Using NPV in a sales business case

If you sell equipment or software with a big price tag, the buyer's finance team will ask what it is worth over its life, not just how fast it pays back. Put the price in as the investment, the savings the buyer agreed to as the cash flows and their hurdle rate as the discount rate. If you do not know the rate, ask: many finance teams use a set figure, and an NPV built on their number gets read.

Keep the savings honest and traceable: hours saved times their labour cost, scrap avoided, the maintenance contract you replace. A simple ROI is fine for a quick answer; NPV is what a CFO uses to compare your project with every other one asking for the same money.

For reps building the business case: Capital equipment sales, Value-based selling, B2B SaaS sales.

The cash flows come from the buyer's own numbers

An NPV is only as good as the savings behind it, and those come out of the discovery call: hours saved, scrap avoided, what the old system costs. ParrotNotes records the conversation on your phone and writes the summary and next steps, so the business case uses the figures the buyer actually gave you.

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NPV calculator FAQ