What discount rate should I use?
Use your cost of capital (weighted average cost of capital/WACC) or required return. Typical rates: 8-12% for stable businesses, 12-20% for growth companies, 20%+ for high-risk ventures.
Calculator
Enter your values
Analysis
Interpretation of the current calculator output
Enter values to see detailed analysis and insights.
How to Use
Step-by-step instructions
- 1Enter the initial investment amount
- 2Input your discount rate (required return or cost of capital)
- 3Add expected cash flows for each year (Years 1-5)
- 4Review the NPV - positive means accept, negative means reject
- 5Higher NPV indicates more value creation
Net Present Value (NPV)
NPV calculates the total present value of future cash flows minus the initial investment. A positive NPV indicates the investment creates value.
NPV = Σ [CFt ÷ (1 + r)^t] - Initial InvestmentVariables:
CF tCash flow in period trDiscount rate (required return)tTime period (year)ΣSum of all periodsExample
Capital Investment Example
Inputs:
Initial Investment:$100,000
Discount Rate:10%
Cash Flows:$30k, $35k, $40k, $45k, $50k
Steps:
- 1.PV Year 1: $30,000 ÷ (1.10)¹ = $27,273
- 2.PV Year 2: $35,000 ÷ (1.10)² = $28,926
- 3.PV Year 3: $40,000 ÷ (1.10)³ = $30,053
- 4.PV Year 4: $45,000 ÷ (1.10)⁴ = $30,754
- 5.PV Year 5: $50,000 ÷ (1.10)⁵ = $31,046
- 6.Total PV = $148,052
- 7.NPV = $148,052 - $100,000 = $48,052
Result:
NPV of $48,052 - accept this investment (creates value)
Frequently Asked Questions
Why is NPV better than simple payback?
NPV accounts for the time value of money - $100 today is worth more than $100 in 5 years. It also considers all cash flows, not just payback period. NPV shows absolute value created.
What if NPV is neg ative but payback looks good?
Reject the project. Negative NPV means it destroys value at your required return, even if you eventually recover the initial investment. Short payback doesn't guarantee profitable returns.