NPV Formula (Net Present Value)
Net present value (NPV) sums the present value of a series of future cash flows, discounting later money back to today at a chosen rate. A positive NPV means the project is expected to create value above its cost of capital; a negative NPV means it destroys value.
The formula
Sums the present values of a series of future cash flows. Positive NPV means the project is profitable; negative means it loses money.
What goes into it
This calculation works from a series of period cash flows rather than single variables — enter them in the live calculator below.
Worked example
Pre-loaded example — five periods (t = 0…4) at R = 5%:
| Period 0 cash flow | −$500,000 |
| Period 1 | $0 |
| Period 2 | $100,000 |
| Period 3 | $150,000 |
| Period 4 | $350,000 |
| NPV at R = 5% | +$8,224 |
The decision rule
Accept the project when NPV > 0, reject it when NPV < 0. Between two options, prefer the higher NPV. The discount rate is your required return — raise it for riskier projects and the same cash flows are worth less today.
NPV in Excel
In a spreadsheet, =NPV(rate, value1, value2, …) discounts a stream of period-end cash flows. Note Excel's NPV assumes the first value is one period out, so a cash flow at time 0 (your initial outlay) is added separately: =initial + NPV(rate, future_flows). The calculator below handles the period-0 flow for you.
Calculate it live
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Register / Sign in →This calculator applies a single rate R to every period. In practice, later-stage cash flows often warrant a lower discount rate as the risk profile improves.