NPV vs IRR — which to use?

NPV gives a dollar answer (best for choosing among projects). IRR gives a percentage (intuitive but problematic for non-conventional flows). Most analysts compute both.

For corporate projects: WACC. For individual investors: their required return given the risk class.

How does NPV handle uneven cash flows?

It's designed for them. Each year's flow is discounted at its own time-distance.

When is NPV unreliable?

When future cash flow estimates are wildly uncertain. NPV is only as good as the inputs.

NPV vs IRR — which to use?

NPV gives a dollar answer (best for choosing among projects). IRR gives a percentage (intuitive but problematic for non-conventional flows). Most analysts compute both.

For corporate projects: WACC. For individual investors: their required return given the risk class.

How does NPV handle uneven cash flows?

It's designed for them. Each year's flow is discounted at its own time-distance.

When is NPV unreliable?

When future cash flow estimates are wildly uncertain. NPV is only as good as the inputs.

NPV (Net Present Value) Calculator

NPV = sum of discounted future cash flows minus initial investment. Positive NPV = accept project.

Result

NPV

$44,433.75

Positive — accept project.

Initial investment$100,000.00
Discount rate10.00%
Cash flows$20,000, $30,000, $40,000, $50,000, $60,000
Sum of discounted CFs$144,433.75
NPV$44,433.75

Strongly value-creating — clears 25% of initial outlay in NPV

NPV at chosen rate

Discounted cash flows minus initial investment.

$44,433.75

Undiscounted nominal sum of inflows

What you would pocket if money had no time value — overstates real return.

$200,000

Profitability Index (PV inflows ÷ outlay)

PI > 1 ⇔ NPV > 0; useful for ranking capital-rationed projects.

1.444

Sensitivity: NPV at +200 bps discount rate

How quickly the verdict flips under modest rate movements.

$36,066

Source: Brealey, Myers & Allen, "Principles of Corporate Finance" 13e — NPV decision rule (Ch. 5). FASB ASC 820 endorses DCF/NPV as a Level-3 valuation technique.

Not financial advice — NPV is only as good as the cash-flow forecast and the discount rate. Run sensitivity analysis at ±100-200 bps and stress-test terminal-period assumptions. For projects with sign changes mid-life, also compute MIRR — IRR can be undefined or multi-valued.

Step-by-step

NPV = -100000 + Σ CF_t / (1+0.1)^t.
Year 1: 20000 / (1+0.1)^1 = 18,181.82.
Year 2: 30000 / (1+0.1)^2 = 24,793.39.
Year 3: 40000 / (1+0.1)^3 = 30,052.59.
Year 4: 50000 / (1+0.1)^4 = 34,150.67.
Year 5: 60000 / (1+0.1)^5 = 37,255.28.
NPV = -100000 + 144,433.75 = $44,433.75.

How to use this calculator

Enter discount rate.
Enter initial investment as a positive number.
List annual cash flows (year 1, year 2, …) separated by commas.

About this calculator

Net Present Value sums the discounted future cash flows of a project and subtracts the initial investment. NPV > 0 means the project earns more than the required return — accept. NPV < 0 means it earns less — reject. The discount rate is typically WACC (for corporate projects) or required return (for individual investors).