NPV and IRR calculator

Net present value and IRR.

Net present value at 8%

1,587.55

Positive: it returns more than 8% a year

IRR (internal rate of return)
14.9%
Profitability index
1.159
Payback period
2.75 years
Discounted payback
3.28 years
Total of the cash flows
4,000.00
YearCash flowPresent valueRunning total
0−10,000.00−10,000.00−10,000.00
13,000.002,777.78−7,222.22
24,000.003,429.36−3,792.87
34,000.003,175.33−617.54
43,000.002,205.091,587.55

Year 0 is today and is not discounted. Each later cash flow is assumed to arrive at the end of its year.

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How to work out NPV and IRR

  1. Enter the Discount rate: the return you need, or what the money costs you to borrow.
  2. List the Cash flows, one per line, starting with year 0 (today). Money paid out is negative, like -10000 for the investment. You can paste a column from a spreadsheet or write lines like Year 1: 3,000.
  3. Read the NPV and IRR, the payback period and the profitability index. The table shows each year’s cash flow, its present value and the running total.

Reading the results

  • NPV above zero: the investment returns more than your discount rate, adding value in today’s money.
  • NPV below zero: it returns less than your discount rate. You’d do better with the alternative the rate stands for.
  • Profitability index: the present value of what comes in divided by the present value of what goes out. Above 1 means the NPV is positive; 1.159 in the example means each 1 invested returns about 1.16 in today’s money.

Choosing a discount rate

The discount rate should reflect the risk of the cash flows and the return you could get elsewhere. Businesses often use their cost of capital. For a personal decision, such as solar panels or a rental property, use the return you’d expect from investing the money instead, or the interest rate on a loan you’d take out to pay for it. Try a few rates: the IRR tells you the highest rate at which the project still breaks even.

The calculator assumes each cash flow arrives at the end of its year. For a single future amount, the present value calculator is simpler.