💹 NPV Calculator

Discount Rate Selection Guide

The discount rate you choose has an outsized impact on NPV — it should reflect the risk of the project and your opportunity cost of capital.

Note: Many companies use their Weighted Average Cost of Capital (WACC) as the baseline discount rate, then add a risk premium for riskier projects. Individuals may use their expected long-term market return (often 5%–8%) as a benchmark.

NPV Decision Rules

The sign of the NPV tells you whether a project creates or destroys value at your chosen discount rate.

Note: NPV is the gold standard for capital budgeting because it measures value in absolute dollars. When comparing projects of different sizes, always rank by NPV rather than by percentage return metrics.

1. Enter the initial investment amount (a positive number representing the upfront cost).
2. Enter the annual discount rate as a percentage (your required rate of return).
3. Enter the projected cash flows for each year, separated by commas (e.g. 3000,4000,5000).
4. Click Calculate to see the NPV and the present value of each cash flow.
5. A positive NPV means the investment is worthwhile; a negative NPV means it is not.

What discount rate should I use?

The discount rate should reflect your opportunity cost — the return you could earn on an alternative investment of similar risk. Companies often use their weighted average cost of capital (WACC), typically 8–12 percent. Individuals might use a conservative 5–7 percent to reflect long-term market returns. Higher rates make future cash flows worth less today.

What does a negative NPV mean?

A negative NPV means the investment earns less than your discount rate, so it destroys value relative to your alternative options. You would be better off investing your money elsewhere at the discount rate. Only projects with a positive (or zero) NPV should be accepted under standard capital budgeting rules.

How do I handle cash flows of different durations?

Enter exactly one value per year, separated by commas. Year 1 comes first, then year 2, and so on. If a year has no cash flow, enter 0 for that year. The calculator discounts each value by the appropriate power of (1 + r) based on its position in the sequence.

What is the relationship between NPV and IRR?

The IRR is the discount rate that makes the NPV exactly zero. If your discount rate is below the IRR, the NPV is positive and the project is worth doing. If your discount rate is above the IRR, the NPV is negative and you should pass. They are two views of the same investment decision.

This tool is for informational purposes only and does not constitute financial advice. Consult a qualified financial professional for advice specific to your situation.

When comparing mutually exclusive projects, always pick the one with the highest positive NPV rather than the highest IRR, because NPV measures the actual dollar value created while IRR only measures the percentage return. Be realistic about your cash flow projections — optimism bias is the number one enemy of good investment decisions, so it helps to run a base case, a best case and a worst case with different cash flow assumptions. The discount rate you choose matters enormously: doubling it from 5 to 10 percent can roughly halve the present value of a 10-year cash flow, so think carefully about your opportunity cost. For projects with very long time horizons, remember that cash flows beyond about 20 years contribute almost nothing to NPV at typical discount rates, so do not let distant promises of huge payoffs dominate your decision. Finally, NPV assumes you can reinvest intermediate cash flows at the discount rate, which may not always be realistic.