NPV and IRR Calculator

Net present value (NPV) adds up all the cash flows after converting each one to today's money. A cash flow that arrives later is worth less, because you could have earned the discount rate on it in the meantime. A positive NPV means the investment earns more than the discount rate. A negative NPV means it earns less.

The internal rate of return (IRR) is the discount rate at which the NPV is exactly zero. If the IRR is above the return you require, the project looks worthwhile. IRR is not defined when all cash flows have the same sign, and it can be unreliable when the sign changes several times.

Excel note: the spreadsheet function NPV assumes the first value happens one period from now, so people add the initial investment separately. This calculator treats the first line as happening today, so no adjustment is needed.

The discount rate is the return you could expect from an alternative use of the money, adjusted for risk. A company might use its cost of capital. An individual might use the return on a savings or investment option they are giving up. Use the same period for the rate and the cash flows: if the flows are yearly, use a yearly rate.

Try a few rates. If the answer flips from positive to negative across a reasonable range, the decision is sensitive to your assumption.