// GUIDE
What is NPV?
Net present value is the cleanest single number for answering whether a project is worth doing.
The formula
NPV = Σ CFₜ / (1 + r)ᵗ
Each future cash flow is divided by (1 + r) ^ years, then everything is added up.
What the result means
- NPV > 0: the project beats the discount rate. The number is the value created in today's terms.
- NPV = 0: the project exactly earns the discount rate. Indifferent.
- NPV < 0: the project underperforms the discount rate. Avoid, all else equal.
Picking the discount rate
The discount rate is the return you could have earned on the same risk elsewhere. Common defaults:
- For corporate projects: the company's weighted average cost of capital.
- For personal projects: the after-tax yield of your safest alternative.
- For comparing options at fixed risk: the same rate across all options.
NPV vs IRR
NPV measures size. IRR measures rate. When the two disagree on ranking, NPV tends to be the more reliable guide — particularly when comparing projects of very different scale.
// USE A CALCULATOR
// BUSINESS MATH
NPV Calculator
Net present value of a cash flow series.
// BUSINESS MATH
IRR Calculator
Internal rate of return for a cash flow series.
// COMPOUNDING
Present Value Calculator
PV of a future amount discounted to today.
// COMPOUNDING
Future Value Calculator
FV of a present amount at a chosen rate.