NPV and IRR Calculator

Calculate the Net Present Value (NPV) and Internal Rate of Return (IRR) of a project or investment. Enter the initial investment, discount rate, and expected cash flows for each period. Use a dot as the decimal separator.

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Enter the expected net cash flows per period.

Result

Net Present Value (NPV)

Internal Rate of Return (IRR)

Could not be calculated

Period detail

Period
Cash flow
Discount factor
Present value
0
1.0000
Net Present Value (NPV)

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What is Net Present Value (NPV)?

Net Present Value (NPV) is a financial method used to evaluate the profitability of an investment project. It consists of bringing all future cash flows to their present value, discounting them at a given rate, and then subtracting the initial investment.

If the NPV is positive, it means the project generates more value than it costs and is therefore a good investment. If it is negative, the project destroys value and would not be advisable.

How is NPV calculated?

NPV is calculated by summing the present value of each future cash flow and subtracting the initial investment. The formula is:

NPV = -I₀ + Σ (Ft / (1 + r)t)

Where:

  • I₀ = Initial investment.
  • Ft = Cash flow at period t.
  • r = Discount rate (in decimal).
  • t = Period number.

NPV calculation example

Suppose a project requires an initial investment of $10,000 and generates the following cash flows over 3 years, with a discount rate of 10%:

  • Year 1: $4,000
  • Year 2: $4,500
  • Year 3: $5,000

The calculation would be:

VAN = -10,000 + 4,000/(1.10)1 + 4,500/(1.10)2 + 5,000/(1.10)3
VAN = -10,000 + 3,636.36 + 3,719.01 + 3,756.57
VAN = -10,000 + 11,111.94
VAN = 1,111.94

Since the NPV is positive ($994.74), the project is profitable and generates value above the required discount rate.

Interpreting NPV

  • NPV > 0: The project generates wealth. The discounted future flows exceed the initial investment.
  • NPV = 0: The project neither creates nor destroys value. The discounted future flows exactly equal the investment.
  • NPV < 0: The project destroys value. The future flows do not cover the initial investment at the required rate.

What is Internal Rate of Return (IRR)?

The Internal Rate of Return (IRR) is the discount rate that makes the NPV of a project equal to zero. In other words, it is the percentage return that the project generates on the investment made.

The IRR is obtained by solving the following equation for r:

0 = -I₀ + Σ (Ft / (1 + IRR)t)

The interpretation of the IRR is straightforward:

  • IRR > discount rate: The project is profitable. It generates a return above the minimum required.
  • IRR = discount rate: The project is indifferent. It generates exactly the minimum required return.
  • IRR < discount rate: The project is not profitable. The return does not meet the minimum required.