How to Calculate Net Present Value (NPV) (2026)

Net Present Value (NPV) tells you whether an investment is worth making by converting all future cash flows into today's dollars. A positive NPV means the investment generates more value than its cost; a negative NPV means it destroys value. It is the foundational metric in capital budgeting, project evaluation, and investment analysis.

The NPV Formula

NPV sums the present value of each future cash flow, then subtracts the initial investment:

NPV = −C₀ + C₁/(1+r)¹ + C₂/(1+r)² + … + Cₙ/(1+r)ⁿ

Where C₀ is the upfront cost (negative cash flow), Cₙ is the cash flow in period n, and r is the discount rate — typically your weighted average cost of capital (WACC) or required rate of return. Each future cash flow is discounted more heavily the further out it falls, because money received later is worth less than money in hand today.

Worked Example

Suppose you are evaluating a project that costs $10,000 upfront and produces cash flows over four years. Using a 10% discount rate:

The project returns a positive NPV of $404, meaning it generates marginally more value than the 10% hurdle rate. Raise the discount rate to 11% and NPV turns negative — which is why the choice of discount rate is often the most sensitive assumption in the analysis.

Choosing the Right Discount Rate

For corporate projects, start with WACC. For personal investments, use your opportunity cost — the return you could reliably earn elsewhere. Risk adjustments belong in the discount rate, not in artificially conservative cash flow estimates; double-counting risk leads to rejecting projects that actually create value. When comparing mutually exclusive projects, always compare NPVs at the same discount rate rather than relying on IRR alone, since IRR can mislead when cash flow timing or project scale differs.

Use the NPV Calculator to run these calculations instantly without spreadsheets.