Skip to content

    Under active development. New calculators and features ship every week. Everything currently runs free while the site matures — pricing pages are a preview, checkout is not open yet.

    Calculates locally in your browser · 5-year discounted cash-flow model
    Capital budgeting / investment appraisal

    NPV, IRR and payback

    Discount a five-year cash-flow forecast back to today, solve the internal rate of return, and see exactly where the project pays back its initial outlay. Every result recalculates locally as you move the inputs.

    VerdictAcceptPV of inflows$148.0kHurdle spread15.75 pts
    Net present value
    $48,033
    Positive: the project clears the hurdle rate
    Internal rate of return
    25.75%
    The discount rate at which NPV equals zero
    Profitability index
    1.480
    Present value of inflows per unit of initial outlay
    Discounted payback
    3.45 yr
    Years until cumulative discounted cash flow turns positive
    Discounted cash-flow schedule
    Each year’s cash flow, the discount factor applied to it, and the running present value against the initial outlay.
    10.0% discount rate
    Yearly cash flows, discount factors and cumulative present value
    YearCash flowDiscount factorPresent valueCumulative PV
    Year 0-$100,0001.0000-$100,000-$100,000
    Y1$30,0000.9091$27,273-$72,727
    Y2$35,0000.8264$28,926-$43,802
    Y3$40,0000.7513$30,053-$13,749
    Y4$45,0000.6830$30,736+$16,987
    Y5$50,0000.6209$31,046+$48,033

    Cash flows are treated as end-of-year. The salvage or terminal value is added to the final year.

    Inspect the model
    Choose a quick result view, a scaled comparison, or the complete diagnostic set.
    Cash flow vs present value
    Nominal cash flow against its discounted value in each year.
    Cash flow vs present value$0$11.8k$23.6k$35.4k$47.2k$59.0k$30.0k$27.3kY1Y1$35.0k$28.9kY2Y2$40.0k$30.1kY3Y3$45.0k$30.7kY4Y4$50.0k$31.0kY5Y5Cash flowPresent value
    Cumulative present value
    Where the running discounted balance crosses the initial outlay.
    Cumulative present value-$108.9k-$73.9k-$39.0k-$4.1k$30.9k$65.8kY0Y0Y1Y1Y2Y2Y3Y3Y4Y4Y5Y5Cumulative PVBreak-even
    NPV sensitivity (thousand $)
    NPV across discount-rate and cash-flow-growth shifts.
    NPV sensitivity (thousand $)-20%-20%-10%-10%0%0%+10%+10%+20%+20%7.0%7.0%8.5%8.5%10.0%10.0%11.5%11.5%13.0%13.0%-15.54417.37461.239118.967193.983-18.62212.73654.420109.165180.181-21.5208.38248.033100.000167.297-24.2514.28942.04291.421155.256-26.8280.43836.41883.382143.991max 193.98383.578min -26.828
    Canonical equations
    The exact relationships implemented by this engine.

    NPV = −C₀ + Σ CFₜ / (1+r)ᵗ · summed over t = 1…T

    0 = −C₀ + Σ CFₜ / (1+IRR)ᵗ · the rate that zeroes NPV

    PI = PV(inflows) / C₀ · accept when PI > 1

    DPB = t* + |cumPVₜ*| / PVₜ*₊₁ · interpolated at the first sign change

    finance methodology

    A clear path from inputs to results.

    Net present value asks a single question: after paying for the project and waiting for its cash flows, are you better off in today’s money? This engine discounts each forecast year at your hurdle rate, solves the internal rate of return on the same flow vector, and shows the sensitivity of the answer to both the discount rate and the cash-flow forecast.

    Step-by-step methodWorked exampleAssumptions explained

    How to use

    1. Enter the initial outlay — the cash committed at time zero, before any inflows arrive.
    2. Set the discount rate. This is your hurdle rate: the return the project must beat to be worth doing.
    3. Fill in the five annual net cash flows. Negative years are allowed, which is how ramp-up costs are modelled.
    4. Add a salvage or terminal value if the asset has residual worth at the end of year five.
    5. Read the verdict from the NPV sign, then check the IRR against your hurdle rate. They agree for conventional cash flows.
    6. Use the sensitivity grid to see how much forecast error the decision can absorb before NPV turns negative.

    The formula

    NPV=−C0+∑t=1TCFt(1+r)t,0=−C0+∑t=1TCFt(1+IRR)t,PI=∑PV(inflows)C0\mathrm{NPV} = -C_0 + \sum_{t=1}^{T} \frac{CF_t}{(1+r)^t}, \qquad 0 = -C_0 + \sum_{t=1}^{T} \frac{CF_t}{(1+\mathrm{IRR})^t}, \qquad \mathrm{PI} = \frac{\sum PV(\text{inflows})}{C_0}

    Reference: Brealey, Myers & Allen, "Principles of Corporate Finance", ch. 5–6; Graham & Harvey (2001) survey of CFO hurdle-rate practice.

    Worked example

    Five-year project, 10% hurdle rate (default inputs)

    Inputs
    • Initial outlay $100,000 at t = 0.
    • Discount rate 10% per year.
    • Cash flows: $30,000, $35,000, $40,000, $45,000, $50,000 for years one to five.
    • No salvage value.
    Calculation path
    1. 1

      Discount each year: 30,000/1.10 = 27,273; 35,000/1.21 = 28,926; 40,000/1.331 = 30,053; 45,000/1.4641 = 30,736; 50,000/1.61051 = 31,046.

    2. 2

      Sum the present values to get $148,033 of discounted inflows.

    3. 3

      Subtract the outlay: 148,033 − 100,000 = $48,033 of net present value.

    4. 4

      Solve for the rate that zeroes that expression. Bisection converges on 25.75%.

    5. 5

      Divide inflows by outlay for the profitability index: 148,033 / 100,000 = 1.48.

    Result

    NPV $48,033 · IRR 25.75% · PI 1.48 · the project clears a 10% hurdle with 15.75 points of spread.

    Interpreting the result

    A positive NPV means the project adds value at your hurdle rate; the size of the number is the value added in today’s money. The IRR restates the same fact as a rate, which is easier to compare against borrowing costs but misleading when cash flows change sign more than once. The profitability index is the ratio version, useful when capital is rationed and you must rank projects of different sizes.

    Assumptions & limitations

    • A single constant discount rate applies to every year. Projects with time-varying risk need a term structure of rates.
    • Cash flows arrive at year end. Mid-year convention would raise the NPV slightly.
    • The forecast flows are point estimates. The sensitivity grid exists because they are not.
    • Conventional cash flows (one sign change) guarantee a unique IRR. Multiple sign changes can produce multiple roots.
    • No taxes, financing costs or working-capital effects are modelled separately; fold them into the cash flows if they matter.

    Frequently asked questions

    What discount rate should I use?

    The rate should reflect the risk of the cash flows, not the cost of the money. A company typically uses its WACC for average-risk projects and a higher rate for ventures riskier than the existing business. Using the borrowing rate understates risk and overstates NPV.

    Is a higher IRR always better?

    No. A small project can have a spectacular IRR and add little value, while a large project with a modest IRR adds far more. IRR also breaks down when cash flows alternate sign, producing more than one mathematically valid answer.

    How should salvage value be treated?

    Add it to the final year’s cash flow before discounting. If the salvage is uncertain, run the sensitivity grid with and without it — a large terminal value is often doing most of the work in a marginal NPV.

    Why do NPV and IRR sometimes disagree?

    They disagree when projects differ in scale or timing. NPV measures absolute value added, IRR measures the percentage return on the outlay. When ranking mutually exclusive projects, NPV is the correct criterion because it is additive across projects.

    What does the profitability index tell me?

    It is value per dollar invested. A PI of 1.48 means each dollar of outlay returns $1.48 of present value. It is the right ranking tool when you have more acceptable projects than capital to fund them.

    Does this model handle taxes?

    Not separately. Enter after-tax cash flows if you want an after-tax answer, and use an after-tax discount rate. Depreciation tax shields belong in the annual flows, not in the discount rate.

    Methodology last reviewed 2026-10-18. Results are informational and not financial or engineering advice — see our disclaimer.