What is Net Present Value (NPV)?

NPV is the sum of all project cash flows discounted back to today at a chosen rate. A positive NPV means the project earns more than its cost of capital and creates value; a negative NPV means it earns less. The formula is NPV = sum of CF_t divided by (1 + r) to the power t, for each period t from 0 to n.

What discount rate should I use?

Use your cost of capital — the return your investors or lenders expect. For a company this is often the Weighted Average Cost of Capital (WACC). A common shortcut is to use an industry benchmark (7–12% for listed equities in developed markets) or the risk-free rate plus a project-specific risk premium. The calculator lets you test multiple rates in seconds.

How is the IRR calculated?

The Internal Rate of Return is the discount rate at which NPV equals zero. This tool uses bisection: it brackets the root between -99.99% and 1000%, then halves the interval 200 times until convergence to within 1e-10. Bisection always converges when a sign change exists and requires no initial guess. Be aware that unconventional cash flows (more than one sign change) can produce multiple IRRs — NPV is more reliable in those cases.

What is the difference between payback period and discounted payback?

Simple payback counts the time until the raw (undiscounted) cumulative cash flow first reaches zero — it ignores the time value of money. Discounted payback does the same with each flow first divided by (1 + r)^t, so it reflects the real economic break-even. Discounted payback is always equal to or longer than simple payback.

What does the Profitability Index (PI) mean?

PI = (NPV + initial outlay) / initial outlay, equivalently the ratio of the present value of future inflows to the initial cost. PI greater than 1 means accept; less than 1 means reject. PI is especially useful when ranking mutually exclusive projects with different scales — a smaller project with PI 1.8 may rank above a larger project with PI 1.2 under a capital constraint.

Can I model quarterly or monthly cash flows?

Yes. Select "Quarter" or "Month" from the Period dropdown. The discount rate you enter is then the rate per quarter or per month. To convert an annual rate to a monthly rate, use (1 + annual rate)^(1/12) - 1. For example, 10% per year = (1.10)^(1/12) - 1 = 0.797% per month.

Completely. All calculations happen inside your browser using JavaScript. No numbers, cash flows, or discount rates are ever sent to any server.

NPV Calculator — Gera Tools

Net Present Value (NPV) is the single most important metric in capital budgeting. It answers the fundamental question: does this investment create or destroy value, measured in today’s money? By discounting every future cash flow back to the present, NPV accounts for the time value of money — a pound received in five years is worth less than a pound today because you could have invested it in the meantime. This calculator gives you NPV, Internal Rate of Return (IRR), two payback periods and a complete discounted cash-flow schedule, all computed instantly in your browser.

How it works

You provide a discount rate (your hurdle rate or cost of capital) and a series of cash flows — one per period, starting at period 0 (today). The tool applies the standard NPV formula:

NPV = sum of [ CF_t / (1 + r)^t ] for t = 0, 1, 2, … n

where CF_t is the net cash flow at period t and r is the discount rate per period. Period 0 is usually a negative number representing the upfront investment. Each subsequent period is the net cash inflow or outflow at the end of that period.

IRR is found via bisection: the tool searches for the rate r* at which NPV equals zero by bracketing the root between -99.99% and 1000% and halving the interval up to 200 times, stopping when the result converges to within 1 × 10⁻¹⁰. This is robust for conventional cash-flow patterns (one sign change from negative to positive). If the cash-flow pattern has multiple sign changes — for example a project with a large decommissioning cost at the end — multiple IRRs may exist and the NPV profile is the more reliable decision tool.

The Profitability Index (PI) equals (NPV + |initial outlay|) / |initial outlay|. It ranks projects by value created per unit of capital invested, which is useful when you have a limited capital budget and must choose between projects of different sizes. A PI above 1.0 means accept; below 1.0 means reject.

Worked example

A logistics company considers installing automated sorters for £100,000 today (Period 0 = −100,000). Expected net savings and revenues over five years:

Period	Cash flow (£)
0	−100,000
1	30,000
2	40,000
3	50,000
4	30,000
5	20,000

At a 10% hurdle rate:

Discount factors: 1.000, 0.909, 0.826, 0.751, 0.683, 0.621
Discounted CFs: −100,000 / 27,273 / 33,058 / 37,566 / 20,490 / 12,418
NPV = +£30,805 → project creates value; accept it
IRR ≈ 20.8% (well above the 10% hurdle)
Simple payback ≈ 3.0 years (cumulative raw CF turns positive mid-Period 3)
Discounted payback ≈ 3.7 years
Profitability Index ≈ 1.308

If the hurdle rate rises to 18%, the NPV falls to roughly +£3,400 — still positive but far less compelling. At about 20.8% it reaches zero (the IRR), and above that the NPV turns negative, meaning the project no longer covers its cost of capital. This sensitivity to the discount rate is why testing multiple rates matters.

All figures are calculated locally in your browser — nothing is uploaded or stored.