NPV Calculator

NPV: Net Present Value

NPV (Net Present Value) discounts a project's future cash flows back to today and subtracts the initial investment: NPV = Σ CFₜ / (1 + i)ᵗ − I₀, where CFₜ is the cash flow at period t, i is the discount rate (typically WACC or the minimum required rate), and I₀ is the upfront investment. Decision rule: NPV > 0 → the project creates value above the cost of capital (accept); NPV = 0 → indifferent; NPV < 0 → destroys value (reject). Example: invest R$ 100,000, receive R$ 30,000 per year for 5 years at a 10% discount rate → NPV = Σ 30k / 1.1ᵗ − 100k = 113,724 − 100,000 = R$ 13,724 → accept.

Applications and context

NPV is the cornerstone of DCF (Discounted Cash Flow) valuation, capex decisions, project appraisal, M&A targets, and is core material in MBA and CFA programs. Its main limitation is sensitivity to the chosen discount rate — a small change in i can flip the sign of NPV, so sensitivity analysis is standard practice.

FAQ

Which discount rate should I use? Usually the company's WACC (weighted average cost of capital) or a minimum acceptable rate of return (hurdle rate) that reflects the project's risk.

NPV or IRR — which is better? NPV is theoretically superior because it measures value in absolute terms and avoids the reinvestment-rate problems of IRR. For mutually exclusive projects, prefer NPV.

Does NPV consider risk? Indirectly — risk is embedded in the discount rate. Riskier projects should use higher rates, lowering their NPV.