NPV & IRR Calculator
Calculate net present value, internal rate of return, modified IRR, profitability index and discounted payback from a series of cash flows, with a sensitivity table across discount rates.
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Money later is worth less than money now
Net present value discounts every future cash flow back to today at a rate that reflects what the money could otherwise earn, then subtracts the initial investment. A positive result means the project earns more than the discount rate; a negative one means the capital is better used elsewhere. It is the standard investment decision rule in corporate finance precisely because it answers in currency rather than in a percentage, and currency is what can be compared between projects of different sizes.
IRR is intuitive and quietly treacherous
The internal rate of return is the discount rate at which net present value equals zero, which makes it feel like a project's return. It has three well documented problems. It assumes interim cash flows are reinvested at the IRR itself, which is rarely available. It can produce multiple valid answers when the cash flow signs change more than once. And it systematically favours small quick projects over larger ones that create more value, because a percentage ignores scale.
Use both, and check the discount rate
The practical approach is to rank by net present value, use the internal rate as a sanity check, and use the modified rate when interim flows are significant since it uses an explicit reinvestment assumption instead of a hidden one. The discount rate matters more than any other input: moving it two points can reverse the decision, which is why the sensitivity table matters more than the headline number.
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Frequently Asked Questions
What discount rate should I use?
Your weighted average cost of capital for a project of typical risk, adjusted upward for a riskier one. Using a rate that is too low makes everything look attractive, which is the most common way capital gets misallocated.
Why does IRR sometimes give more than one answer?
Because the equation is a polynomial, and each sign change in the cash flow series can add a root. A project with an initial outflow, inflows, then a large closing cost has two sign changes and can have two internal rates, neither of which is meaningful.
What is modified IRR and when should I use it?
MIRR discounts negative flows at the finance rate and compounds positive ones at an explicit reinvestment rate rather than at the IRR. Use it whenever interim cash flows are large, because the standard IRR reinvestment assumption is usually unrealistic.
Should I rank projects by NPV or IRR?
By net present value when capital is not constrained, since it measures value created. By profitability index when capital is rationed, since it measures value per unit invested. Ranking by IRR alone reliably favours small projects over valuable ones.
What is discounted payback?
The period at which cumulative discounted cash flows turn positive. It answers a different question from NPV, namely how long capital is at risk, and it is worth reporting alongside because a positive NPV arriving in year nine carries different risk from one arriving in year two.
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How to Use
Enter the cash flow for each period, starting with the initial investment as a negative number.
Disclaimer: This tool is provided "as is" without warranty of any kind. Results are for educational and utility purposes.
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