NPV and rough IRR of an investment.
NCF = Cash Inflows − Cash Outflows
FCF = Operating Cash Flow − Capital Expenditures
NPV = Σ [ CFₜ / (1 + r)ᵗ ] − Initial Investment
where t = 1 to nThis calculator uses three core formulas:
1. Net Cash Flow (NCF) The simplest measure — total cash coming in minus total cash going out during a period.
2. Free Cash Flow (FCF) Operating cash flow minus capital expenditures; shows how much cash is truly available after maintaining or expanding the asset base.
3. Net Present Value (NPV) Discounts each future period's net cash flow back to today using a required rate of return (discount rate). A positive NPV means the investment adds value; a negative NPV means it destroys value.
NPV = [30,000/(1.10)¹] + [30,000/(1.10)²] + [30,000/(1.10)³] + [30,000/(1.10)⁴] + [30,000/(1.10)⁵] − 100,000 Year 1: 30,000 / 1.1000 = 27,272.73 Year 2: 30,000 / 1.2100 = 24,793.39 Year 3: 30,000 / 1.3310 = 22,539.44 Year 4: 30,000 / 1.4641 = 20,490.40 Year 5: 30,000 / 1.6105 = 18,627.64 Sum of discounted cash flows = 113,723.60 NPV = 113,723.60 − 100,000 = 13,723.60
Result: Net Cash Flow per year: $30,000 | NPV: **$13,723.60**
The NPV of +$13,723.60 tells you that, after accounting for the time value of money at a 10% discount rate, this investment is expected to create roughly $13,724 of additional value above and beyond simply earning 10% per year on your $100,000. Because the NPV is positive, the investment clears your required rate of return hurdle and is financially worthwhile under these assumptions. If the NPV were negative, the investment would fail to meet your 10% threshold and would be considered value-destructive. Note: these are estimates based on projected cash flows; actual results depend on real-world revenues, costs, and market conditions.
Profit (net income) and cash flow are not the same thing. A business can be profitable on paper while simultaneously running out of cash — a situation that causes many otherwise healthy companies to fail. Cash flow tracks the actual movement of money, while profit includes non-cash items like depreciation and accruals.
A dollar received today is worth more than a dollar received a year from now because today's dollar can be invested and grow. The NPV formula accounts for this time value of money by discounting each future cash flow at your chosen rate. Choosing the right discount rate is critical — common choices include the Weighted Average Cost of Capital (WACC) for businesses or a personal required rate of return for individual investors.
| Scenario | Typical Discount Rate | |---|---| | Risk-free government bonds | 4–5% (current yield) | | Established business (WACC) | 7–12% | | Start-up or high-risk venture | 15–30%+ | | Personal hurdle rate | Your next-best investment return |
Cash flow projections are only as reliable as the assumptions behind them. Small changes in the discount rate or projected inflows can dramatically shift NPV. Always perform sensitivity analysis — recalculate with optimistic and pessimistic scenarios — before making major financial decisions.
Results produced by this calculator are estimates for educational and planning purposes. They do not constitute financial advice and may differ from analyses produced by a licensed financial advisor, lender, or institution.
The point at which cumulative cash flow crosses zero is called the **payback period** — the time it takes to recover the initial investment. A shorter payback period reduces risk, but unlike NPV it ignores the time value of money and cash flows beyond the breakeven point.
Taxes reduce cash flow directly. In a full DCF model, you should use **after-tax cash flows** — i.e., net operating profit after tax (NOPAT) plus non-cash charges minus changes in working capital and CapEx. Using pre-tax figures overstates the value of an investment.
The IRR is the discount rate at which NPV equals zero. If the IRR exceeds your required rate of return (hurdle rate), the investment is attractive. NPV and IRR usually agree on whether to accept a project, but NPV is generally preferred because it measures absolute value creation rather than a percentage.
Inflation erodes the purchasing power of future cash flows. When building projections, you can either (a) keep cash flows in today's dollars and use a real discount rate, or (b) inflate cash flows year-by-year and use a nominal discount rate. Both approaches yield the same NPV if applied consistently.
Any NPV greater than zero is theoretically acceptable — it means the investment earns more than your required rate of return. However, in practice you should compare the NPV of competing projects and choose the highest positive NPV relative to the investment size (using the Profitability Index = NPV / Initial Investment).
For a business project, use the company's Weighted Average Cost of Capital (WACC). For personal investments, use the return you could realistically earn in your next-best alternative. For very conservative estimates, use a current risk-free rate such as the 10-year U.S. Treasury yield plus a risk premium.
Net income includes non-cash items like depreciation, amortization, and accrual adjustments. Cash flow only counts actual cash that moves in or out. A company can show positive net income while still having negative cash flow if customers have not paid yet or if it is spending heavily on inventory.
Operating cash flow is cash generated before capital expenditures. Free cash flow subtracts capital expenditures from operating cash flow, revealing how much cash is genuinely available to pay investors, reduce debt, or fund growth after maintaining the business's asset base.
Yes. NPV is useful any time you compare an upfront cost to a stream of future benefits — for example, evaluating whether to buy or lease equipment, whether a college degree's future earnings justify its cost, or whether to refinance a mortgage.
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