Reviewed by Finin2min Editorial Desk · Last reviewed 11 August 2026
Discount a series of annual cash flows and compare the present value created with the initial investment.
Project cash flows
Net present value
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Present value of inflows
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Use after-tax incremental cash flows and a risk-consistent discount rate.
How This Is Calculated
NPV sums the present value of all future cash flows (each discounted back at the specified rate based on how many years out it occurs), minus the initial investment — a positive NPV indicates the project is expected to create value above the required rate of return; a negative NPV indicates it destroys value at that discount rate.
Frequently Asked Questions
What does a positive versus negative NPV mean?
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A positive NPV means the project's discounted future cash flows exceed the initial investment — it's expected to generate returns above your required rate (the discount rate used). A negative NPV means the opposite — the project is expected to destroy value at that required rate.
How sensitive is NPV to the discount rate chosen?
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Very sensitive, especially for cash flows far in the future — a higher discount rate shrinks the present value of later cash flows more than earlier ones, so NPV can swing significantly with even modest changes to the assumed discount rate. Testing a range of rates is good practice.
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Scope: Computes the Net Present Value (NPV) of a series of cash flows given a discount rate, to assess whether a project or investment creates value in present-day terms.
Calculation logic
NPV = Σ (CFt ÷ (1 + r)t) for t = 0 to n, where CFt is the net cash flow in period t (the initial investment is entered as a negative cash flow at t = 0), and r is the discount rate.
A positive NPV indicates the project's discounted cash inflows exceed the discounted cost of the investment at the given discount rate; a negative NPV indicates the opposite.
Inputs and assumptions
Assumes cash flows occur at the end of each discrete period entered (typically annual) unless specific dates are provided for an XNPV-style calculation.
The discount rate entered should reflect the required rate of return or cost of capital appropriate to the risk of the cash flows (commonly the WACC).
Exclusions and edge cases
Does not independently determine the appropriate discount rate — that is a user input (or can be computed separately using the WACC calculator).
Does not account for taxes on the cash flows unless the user enters post-tax cash flow figures.
Sources
No external regulatory source applies — this is a general financial formula, not a statutory computation.
Review status: reviewed and approved by CA Nikhil Gupta on 18 July 2026.