NPV & IRR Calculator
Decide whether a project or investment is worth it. Enter the upfront cost and expected yearly cash flows to get net present value, internal rate of return, profitability index and payback period.
Net present value
| Year | Cash flow | Present value | Cumulative PV |
|---|
How to calculate NPV and IRR
- Enter the upfront investment as a positive number.
- Enter your required rate of return (discount rate), often your cost of capital or the return you could earn elsewhere.
- List the expected net cash flow for each year, one per line.
Reading NPV and IRR
Net present value converts every future cash flow into today's dollars at your discount rate and subtracts the upfront cost. A positive NPV means the investment earns more than your required return; a negative NPV means it falls short. NPV is the most reliable single test because it measures value in dollars.
IRR is the discount rate at which NPV equals zero: the investment's own effective yearly return. Projects with an IRR above your required return are attractive. IRR can mislead when cash flows change sign more than once or when comparing projects of very different size, so check NPV as well.
Payback period shows how quickly the original investment is recovered, ignoring the time value of money; discounted payback does the same using present values. They are useful measures of risk and liquidity but ignore everything after payback.
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Frequently asked questions
What discount rate should I use?
Your cost of capital or the return you could get from an alternative investment of similar risk.
What is a good IRR?
Any IRR comfortably above your discount rate. Riskier projects should clear a higher bar.
Why might there be no IRR?
If cash flows never change sign, or change sign several times, IRR may not exist or may not be unique. NPV still works.
Are cash flows at the end of each year?
Yes. The initial investment is at time zero and each listed cash flow at the end of its year.