NPV Calculator
Net present value converts future cash flows into today's money, using a discount rate. A positive NPV means the investment earns more than the rate you required.
Results
Net present value
₹16,986.54
- Result
- Positive NPV: adds value at this discount rate
- Total cash flow (undiscounted)
- ₹50,000.00
- Profitability index
- 1.17
- PV of inflows ÷ initial outlay
At a 10% discount rate, the NPV of 5 cash flows is ₹16,986.54.
Show the calculation steps
- Discount each cash flow: cash flow ÷ (1 + 10%)^t, where t is the period number starting at 0.
- Period 0: -₹1,00,000.00 ÷ 1 = -₹1,00,000.00.
- Period 1: ₹30,000.00 ÷ 1.1 = ₹27,272.73.
- Period 2: ₹35,000.00 ÷ 1.21 = ₹28,925.62.
- Period 3: ₹40,000.00 ÷ 1.331 = ₹30,052.59.
- Period 4: ₹45,000.00 ÷ 1.4641 = ₹30,735.61.
- NPV = sum of the discounted cash flows = ₹16,986.54.
- Period 0 is normally the initial investment (a negative number). The discount rate should reflect the return you could earn elsewhere with similar risk.
The idea of discounting
A rupee received later is worth less than a rupee today, because today's rupee could be invested. Discounting reduces each future cash flow by the rate of return you could earn elsewhere.
Choosing the discount rate
Use the return you would expect from an alternative investment of similar risk. A higher discount rate lowers NPV, so test a few rates to see how sensitive the decision is.
Formula
NPV = Σ cash flow_t ÷ (1 + r)^t for t = 0 … n
Where:
- r
- = Discount rate per period
- t
- = Period number (0 for now)
- cash flow_t
- = Money in (+) or out (−) in period t
Example calculation
₹1,00,000 outlay and four annual inflows at 10%
Inputs
- Discount Rate
- 10 %
Result
- Net present value
- ₹16,986.54
- Result
- Positive NPV: adds value at this discount rate
- Total cash flow (undiscounted)
- ₹50,000.00
- Profitability index
- 1.17
Step-by-step
- Discount each cash flow: cash flow ÷ (1 + 10%)^t, where t is the period number starting at 0.
- Period 0: -₹1,00,000.00 ÷ 1 = -₹1,00,000.00.
- Period 1: ₹30,000.00 ÷ 1.1 = ₹27,272.73.
- Period 2: ₹35,000.00 ÷ 1.21 = ₹28,925.62.
- Period 3: ₹40,000.00 ÷ 1.331 = ₹30,052.59.
- Period 4: ₹45,000.00 ÷ 1.4641 = ₹30,735.61.
- NPV = sum of the discounted cash flows = ₹16,986.54.
Important notes
- The first cash flow is treated as period 0 and is not discounted (the spreadsheet NPV function discounts it, so do not compare directly).
Disclaimer: This calculator provides estimates for informational purposes and should not be considered financial advice. Actual figures from lenders, banks and investment products can differ because of fees, taxes, rounding rules and changing rates. Consult a qualified professional before making financial decisions.
Frequently asked questions
What does a positive NPV mean?
The investment is expected to earn more than your discount rate, so it adds value.
How is NPV different from the Excel NPV function?
Excel's NPV treats the first value as one period away. This calculator uses the finance-textbook convention where period 0 is today.
What discount rate should I use?
Your required return or the cost of capital. Try several to see how the answer changes.
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