NPV & IRR Calculator

Net present value (NPV) and internal rate of return (IRR) are the two workhorses of investment analysis. Both rest on the time value of money, which is the principle that a dollar today is worth more than a dollar next year, because today's dollar can be invested. NPV translates a stream of future cash flows into a single dollar value in today's terms; IRR expresses the same stream as an annualized percentage return.

This calculator takes an initial investment and a custom cash flow for each year, then reports the NPV at your chosen discount rate, the IRR, the total cash flow, and the final investment value. Each year's Net Cash Flow and Investment Value @ Sale are editable right in the data table, so you can model irregular cash flows and an eventual sale.

How does this calculator work?

Set the number of years, the initial investment, and a discount rate (your required return). The Annual Net Cash Flow and Cash Flow Increase fields fill the table's Net Cash Flow column. Year 1 gets the base amount and each later year grows by the increase rate, while the Initial Investment and Investment Appreciation Rate (enter a negative rate here to model an asset that depreciates, the way our depreciation calculator does) are used to fill the Investment Value @ Sale column. You can then override any single year directly in the table; the small fill-down button on each cell copies its value to all the rows below.

Net Present Value (NPV) discounts every future cash flow back to today and subtracts the initial cost. A positive NPV means the investment is expected to add value at that discount rate.

The Internal Rate of Return (IRR) is the discount rate at which NPV equals zero, which is effectively the investment's annualized return. Compare it to your required return.

The Investment Value @ Sale column is what makes this tool more than a plain NPV formula: it assumes the investment itself can be sold, and the headline NPV and IRR include selling at the end of the final year. Each table row shows the NPV and IRR if you had sold at the end of that year instead, and the Cumulative Net Cash Flow chart tracks the undiscounted running total. If you want to assume you cannot sell the investment, or won’t have any residual value, make the Investment Value @ Sale equal zero.

Worked example

Invest $100,000 today and receive $30,000 a year for 5 years, with a required return (discount rate) of 8%. To reproduce this in the calculator: set No. of Years to 5, Initial Investment to $100,000, Annual Net Cash Flow to $30,000, Cash Flow Increase to 0%, and Discount Rate to 8%; then type 0 in the first Investment Value @ Sale cell and fill it down, since this example is a pure cash-flow project with nothing to sell.

Initial investment

−$100,000

Cash flow, years 1–5

$30,000/yr

Total undiscounted inflow

$150,000

NPV at 8%

$19,781

IRR

15.24%

How the numbers work

NPV discounts each year's $30,000 back to today at 8% and adds them up: the five payments are worth $119,781 in present-value terms. Subtracting the $100,000 cost leaves an NPV of $19,781.

The IRR is the rate that would make that NPV exactly zero, in this case 15.24 percent, found by solving until the discounted inflows equal only the $100,000 outlay.

Now suppose you could also sell the investment for its original $100,000 at the end of year five. Fill the Investment Value @ Sale column with $100,000 and the discounted sale price is added to the cash flows. This causes the NPV to jump to $87,840 and the IRR becomes exactly 30% (a $30,000 annual cash flow on an asset returned at full value is a 30% yield). The sale value often dominates the answer, which is why that column deserves real numbers.

Although the project returns $150,000 in raw dollars, those future payments are worth $119,781 today, which is an NPV of $19,781 after the $100,000 cost. Because the NPV is positive and the 15.24% IRR clears the 8% required return, the project adds value.

Notice the undiscounted total ($150k) overstates the gain; discounting is what reveals the real economic value.

NPV or IRR: which should you trust?

Both metrics agree on whether a single project is worth doing: a positive NPV corresponds to an IRR above your required return. They can disagree when ranking competing projects of different sizes or timing, because IRR is a percentage that ignores scale while NPV measures absolute dollar value added. When they conflict, finance theory favors NPV, since maximizing total value created is usually the goal. Neither one tells you how quickly you'll recoup the initial cost, which is what a payback period calculator answers.

IRR also has quirks: cash flows that switch between negative and positive more than once can produce multiple IRRs or none at all. NPV has no such ambiguity, which is another reason to treat it as the primary measure and IRR as a useful, intuitive companion.

Choosing a discount rate

The discount rate represents your required return, or what you could earn on an alternative investment of similar risk. This is sometimes also called your cost of capital, similar to the rate you'd pay on a business loan to fund the same project. A higher discount rate penalizes distant cash flows more heavily, lowering NPV; a lower rate raises it. Because the choice of rate strongly affects the result, it's worth testing a range to see how sensitive the decision is rather than relying on a single assumption.