How to use the NPV calculator
- Enter the initial investment as a positive outflow today.
- Enter the steady annual cash flow you expect.
- Enter the number of years and your discount rate.
- Read the NPV and whether the project clears your hurdle rate.
Why discount at all
A dollar next year is worth less than a dollar today because of inflation and the return you could earn elsewhere. Discounting puts every cash flow on the same timeline.
A worked example
Invest $10,000 today for $2,500 a year for 5 years at an 8% discount rate. The present value of the cash flows is about $9,985, so the NPV is about -$15 and the project barely fails your hurdle.
NPV versus IRR
NPV tells you the dollar value created; the internal rate of return tells you the effective percentage return. Use NPV when choosing between projects of different sizes.