Money & finance

NPV and IRR Calculator

Enter the initial investment, the yearly cash flows and the discount rate. Get NPV, IRR and payback with every step.

Cash flows

Step by step

    Present value table

    What NPV and IRR tell you

    Net present value (NPV) brings every future cash flow back to today's money with a discount rate (your required return or cost of capital) and adds them up, including the initial investment as a negative number:

    NPV = Σ CFt / (1 + r)t

    • NPV > 0: the project returns the investment, the required return and some extra value. Accept it.
    • NPV < 0: it does not reach the required return. Reject it.

    The internal rate of return (IRR) is the discount rate that makes NPV exactly zero: the project's own rate of return. If the IRR is above your required rate, the project is worth it. It has no closed formula and is found numerically.

    Example · invest $10,000, receive $3,000, $4,000, $5,000 and $2,000

    At a 10% discount rate: −10,000 + 3,000/1.1 + 4,000/1.1² + 5,000/1.1³ + 2,000/1.1⁴ = −10,000 + 2,727 + 3,306 + 3,757 + 1,366 = NPV ≈ $1,155. The IRR is about 15.4%, above the 10% required, so the project is acceptable.

    Payback period and profitability index

    • Payback period: how long it takes for the cumulative cash flows to cover the investment. The discounted version uses present values and is always longer.
    • Profitability index: present value of the inflows divided by the investment. Above 1 means a positive NPV.

    Frequently asked questions

    What discount rate should I use?

    In finance courses it is usually given (WACC or required return). In practice it is the return you could get elsewhere at a similar risk, or the cost of the money you borrow.

    Why can there be more than one IRR?

    If the cash flows change sign more than once (for example, a big cost in the middle of the project), NPV can cross zero several times. In that case rely on NPV.

    Is this the same as Excel's NPV function?

    Not exactly: Excel's NPV() assumes the first value is at the end of year 1. To match this tool, use =NPV(rate, years 1…n) + initial investment, or Excel's IRR() for the IRR.

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