Net Present Value (NPV) Calculator
Written by Thierno Sadou Diallo, formula verified per our methodology • Last checked on 9/5/2026
Net present value (NPV) measures an investment's real profitability by discounting each future cash flow: NPV = −initial investment + sum of annual cash flows discounted at the required rate. An investment of €10,000 generating €3,000/year for 5 years, discounted at 10%, has an NPV of €1,372.36: the project is profitable, since the NPV is positive.
Explanation
Net present value (NPV) is the standard indicator for judging an investment's profitability, because it incorporates a fundamental principle of finance: a euro received in five years is worth less than a euro received today, due to inflation, risk, and the opportunity cost of not being able to invest that sum elsewhere in the meantime. The investment payback period (how long it takes to recover the initial capital) completely ignores this depreciation over time — two investments with the same payback period can have very different NPVs if their cash flows are discounted at different rates. See also our future value calculator, which applies the same discounting logic in reverse. The decision rule is simple: a positive NPV means the investment returns more than the required discount rate (the cost of capital, or the minimum return expected by the investor) and therefore creates value; a negative NPV means the opposite — the investment destroys value relative to that return requirement, even if it remains profitable in raw, non-discounted terms. The discount rate chosen has a decisive effect on the result: the higher it is, the less weight future cash flows carry in the calculation, which penalizes investments whose gains are further away in time more heavily. This calculator assumes an identical annual cash flow every year to stay within the realm of closed-form formulas that can be verified analytically (as the compound interest calculator already does for savings); a project with cash flows that vary from year to year requires discounting and summing each flow individually rather than using this simplified constant-flow formula.
Example: €10,000 investment over 5 years
Inputs
Initial investment: €10,000. Annual cash flow: €3,000. Discount rate: 10%. Duration: 5 years.
Calculation
NPV = −10,000 + 3,000 × (1 − 1.10⁻⁵) / 0.10 = −10,000 + 3,000 × 3.7908 ≈ −10,000 + 11,372.36 ≈ €1,372.36.
Result
This project's NPV is positive (€1,372.36): at the required 10% discount rate, the investment creates value and is therefore profitable.
Frequently asked questions
How do I choose the discount rate to use?
The discount rate reflects the investor's cost of capital (the rate at which they could borrow, or the return they could get on an alternative investment of comparable risk) rather than an arbitrary figure. In business, it often corresponds to the weighted average cost of capital (WACC); for an individual, the expected return of a comparable-risk alternative investment is commonly used, increased by a risk premium if the project being evaluated is more uncertain than that alternative.
Does a positive NPV guarantee that an investment is a good choice?
A positive NPV means the project is profitable at the chosen discount rate, but it says nothing about the amount of capital tied up or the actual level of risk involved, which may differ from the simplifying assumption of a single discount rate. Between two projects with positive NPVs but very different investment amounts, the profitability index (NPV relative to the initial investment) is often a better comparison criterion than NPV in absolute value alone.
Why does this calculator assume an identical cash flow every year?
Because this assumption allows the use of an exact closed-form formula (a geometric series sum), simple to verify and instant to calculate. In reality, a project's cash flows often vary from year to year (gradual ramp-up, rising maintenance costs...); in that case, NPV is calculated by discounting and adding each annual cash flow individually, flow/(1+rate)^year, rather than with this simplified constant-flow formula.