NPV Calculator
NPV and decision from cost and three flows.
What it does
Net present value puts a price on timing. A dollar next year is worth less than a dollar today, so future inflows discount back at the required rate before comparing against upfront cost. Positive means the project beats the hurdle; negative means it trails.
The tool above discounts three annual flows. With $10,000 cost and three $4,000 inflows at 10%, inflows total $9,947.41 and NPV is -$52.59, a Reject. With $5,000 cost and three $2,000 inflows at 8%, inflows are $5,154.19 and NPV is +$154.19, an Accept. Small rate moves flip close calls.
Rate choice drives the verdict. Higher hurdles punish later years hardest, so back loaded projects swing most. At 0% the model collapses to undiscounted sums, useful as a sanity bound before discounting.
This page fixes three annual periods with one rate. It does not handle monthly timing, taxes, salvage, or changing rates. For those, extend the same discounting idea period by period.
How to use
- Enter the upfront cost.
- Enter the three yearly inflows.
- Enter the discount rate percent.
- Read discounted inflows first.
- Read NPV with sign.
- Apply accept above zero, reject below.
Formula
- cost
- Upfront outlay in dollars at time zero.
- CF1-3
- Inflows at ends of years 1, 2, 3.
- r
- Annual discount rate as a decimal.
Three annual inflows discounted at one fixed rate against upfront cost. At zero rate there is no discounting. Unequal timing, taxes, and salvage need extended models.
Worked example
Example: three $4,000 flows at 10%
Defaults: $10,000 cost with three $4,000 inflows at a 10% discount rate.
- Inputs: $10,000 cost with $4,000 in years 1 to 3 at 10%.
- Discount: 4000/1.1 plus 4000/1.21 plus 4000/1.331.
- Inflows: 3636.36 plus 3305.79 plus 3005.26 is $9,947.41.
- NPV: 9947.41 minus 10000 is -$52.59.
- Below zero means Reject. Tool shows the same.
Reference table
| Cost and flows | NPV | Call |
|---|---|---|
| 10000, 4000x3 at 10% | -$52.59 | Reject |
| 5000, 2000x3 at 8% | +$154.19 | Accept |
| 5000, 2000x3 at 0% | +$1,000.00 | Accept |
| 8000, 3000x3 at 10% | -$539.44 | Reject |
| 4000, 2000x3 at 5% | +$1,446.50 | Accept |
Limits
- Three annual flows fixed. Longer lives need more periods.
- One rate assumed. Changing rates excluded.
- Before tax. Cash taxes shift flows.
- No salvage or working capital layers.
Common mistakes
- Using nominal flows with a real rate.
- Counting sunk costs in the cost.
- Flipping accept and reject signs.
- Ignoring timing within each year.
- Comparing NPVs across different lives as if equal.
Try it yourself
Quick checks. Answers sit tucked under each question.
$5,000 cost with three $2,000 inflows at 8%?
Inflows are $5,154.19 against $5,000 cost: NPV +$154.19, Accept (above zero).
$5,000 cost with three $2,000 inflows at 0%?
At 0% inflows sum to $6,000 against $5,000: NPV +$1,000.00, Accept.
Questions
How is NPV figured?
NPV = discounted inflows minus cost. Here -$52.59 with $9,947.41 inflows.
What is the decision rule?
Accept above zero, reject below, break even at zero. Here Reject (below zero).
What happens at 0%?
At 0% add inflows undiscounted. A 5000/2000x3 case gives $1,000.00.
Does the rate change decisions?
Higher rates shrink later flows and can flip accept to reject.
Are mid year flows handled?
No. Timing within the year and taxes sit outside this annual model.
Do sunk costs enter?
No. Sunk costs stay out; only forward flows and cost count.