What discount rate should I use?

Typically your cost of capital or required rate of return. Common ranges: 8-12% for corporate investments, 15-25% for startups, 4-6% for low-risk investments.

What if NPV is negative?

Negative NPV means the investment returns less than your required rate. You would be better off investing elsewhere at the discount rate.

NPV Calculator

Calculate Net Present Value of an investment using a discount rate and future cash flows. Positive NPV = good investment. Enter initial cost and expected annual returns.

What Is Net Present Value?

Net Present Value (NPV) measures the difference between the present value of future cash inflows and the initial investment cost. It accounts for the time value of money, recognizing that a dollar received today is worth more than a dollar received in the future. A positive NPV means the investment earns more than the required rate of return and creates value. A negative NPV signals the project would destroy value compared to alternative investments at the same discount rate.

NPV Formula

NPV = Σ [Cash Flow / (1 + r)^t] − Initial Investment

Where: r = discount rate (cost of capital), t = year number

Choosing the Right Discount Rate

The discount rate represents your minimum acceptable return or cost of capital. Corporate projects typically use 8-12%, reflecting the weighted average cost of capital (WACC). Startups and venture capital deals use 15-25% to compensate for higher risk. Government and infrastructure projects may use 4-6%. Choosing a rate that is too low overstates project value, while too high a rate can reject profitable opportunities.

NPV in Investment Decisions

NPV is the gold standard for capital budgeting because it directly measures value creation in dollar terms. When comparing multiple projects, choose the one with the highest positive NPV. Unlike simple payback or ROI, NPV considers every cash flow across the entire project life and adjusts for risk through the discount rate. Pair NPV with Internal Rate of Return (IRR) and payback period for a complete picture of any investment opportunity.