Discount a series of future cash flows to present value and test whether a project creates value.
The annuity factor sums the discount factors in closed form for a level cash flow. A positive NPV means the project earns more than the discount rate, which is the decision rule; the profitability index ranks projects when capital is constrained. NPV is the theoretically correct appraisal measure because it is denominated in value rather than a rate, and values add across projects.
Net Present Value
NPV = Σ cash flow ÷ (1 + r)ᵗ − initial investment
NPV = Σ cash flow ÷ (1 + r)ᵗ − initial investment The annuity factor sums the discount factors in closed form for a level cash flow. A positive NPV means the project earns more than the discount rate, which is the decision rule; the profitability index ranks projects when capital is constrained.
NPV is the theoretically correct appraisal measure because it is denominated in value rather than a rate, and values add across projects.
This calculator takes 5 inputs: Initial investment, Annual cash inflow, Discount rate, Project life, Terminal or salvage value. The pre-filled defaults are a realistic starting point — replace them with figures from your own environment for a result you can act on.