NPV and IRR calculator

What is net present value?

The value today of all future cash flows, minus what you put in. Each flow is divided by (1 + rate) raised to the number of years until it arrives. A positive NPV means the investment earns more than the discount rate.

How do I enter the cash flows?

One per line, starting with today: the investment as a negative number, then the return for each year. −10000, 3000, 4000, 5000, 2000 at 8% gives an NPV of $1,646.35.

What is IRR?

The internal rate of return — the discount rate at which the NPV is exactly zero. For the flows above it is 15.32%. A project is attractive if its IRR beats your required return.

What is the payback period?

How long until the cash coming back equals what you put in, without discounting: 2.6 years in the example.

Why might IRR be missing?

IRR needs at least one negative and one positive flow. Unusual patterns with several sign changes can have more than one IRR; the calculator reports the lowest one it finds.

What discount rate should I use?

The return you could expect from another investment of similar risk, or the cost of the money you are using. It is a judgment, not something the calculator can look up: a higher rate shrinks the value of later cash flows, and a project that is positive at 6% can be negative at 12%. Try several rates and see how far the NPV moves.

Why is my spreadsheet NPV different?

Excel's NPV function assumes the first value in the range is paid one period from now, not today. Entering the investment as the first value therefore gives a number that is one period of discounting off. Here the first line is at time 0 and is not discounted; if you use a spreadsheet, add the initial investment separately.

Which is better, the highest NPV or the highest IRR?

When projects compete, compare NPVs at your discount rate: NPV measures the value created in dollars, while IRR is a rate that can favor a small project over a larger one. In the example below, project A has a higher IRR (36.3%) than project B (29.1%), yet B has the higher NPV at 5% ($67.63 against $63.39).

The formula

NPV = C₀ + C₁ ÷ (1 + r) + C₂ ÷ (1 + r)² + … + Cₜ ÷ (1 + r)ᵗ, where Cₜ is the cash flow in period t (negative for money paid out, positive for money received), r is the discount rate per period and t counts periods from today. The rate and the periods must match: if flows are monthly, use a monthly rate, not the annual one. The method assumes that every flow is known in advance and arrives at the end of its period.

Worked example

An investment of $50,000 returns $15,000, $18,000, $20,000, $12,000 over four years, discounted at 10%. The present values are −$50,000, $13,636, $14,876, $15,026, $8,196, which add up to an NPV of $1,735. Because it is positive, the project earns more than 10%. At 8% the NPV is $4,018 and at 15% it is −$3,335, so the IRR, where the NPV is zero, lies between them: 11.62%. Undiscounted, the cash back equals the $50,000 invested after 2.85 years.

IRR and NPV can disagree

Take two projects with an investment of 100 each. Project A returns 60 a year for three years and project B returns 20, 40 and 130. At 10% A has an NPV of $49.21 and B of $48.91; at 5% A has $63.39 and B $67.63. The IRRs are 36.3% and 29.1%. The ranking by NPV flips with the rate, while the IRR is a single number, which is one reason to rank mutually exclusive projects by NPV at a rate that reflects your real cost of capital.

Common mistakes

The signs matter: the outlay must be negative and the returns positive, or every result is reversed. Mixing periods, such as annual rate with monthly flows, is the second. A third is relying on IRR when the signs change more than once: the flows -100, 230, -132 have two IRRs (10% and 20%), and the calculator reports only the lowest it finds (10.0%). Finally, NPV is only as good as the forecast of the cash flows, so test a pessimistic case as well as a hopeful one.

Sources: standard discounted-cash-flow definitions of net present value and internal rate of return as used in corporate finance textbooks; Microsoft's documentation of the Excel NPV function (cash flows assumed at the end of each period). Related: present value calculator, future value calculator, ROI calculator, compound interest calculator.

Estimates for planning only — not financial advice. Your plan documents and contracts decide. How we check our calculators.