NPV Calculator: calculate npv for your business. Formula, benchmarks, and practical tips included.
NPV = −Investment + Σ(CF_y ÷ (1+r)^y) for y = 1 to n. Where r is the discount rate (WACC) and CF_y is the net cash flow in year y. The discount factor (1+r)^y converts future cash flows into present value — at 10% WACC, £110 in Year 1 is worth £100 today, and £161 in Year 5 is also worth £100 today.
IRR: the discount rate r* where NPV = 0. Solved numerically using Newton-Raphson iteration: start with r = 10%, compute NPV, adjust r based on the slope of the NPV curve, iterate until NPV ≈ 0. The Profitability Index = (NPV + Investment) ÷ Investment — a PI above 1 means the investment is value-accretive per pound invested.
Worked example: £200,000 investment, cash flows of £50k/£60k/£70k/£80k/£80k, WACC 10%. Year 1 PV: £50,000÷1.10 = £45,455. Year 2: £60,000÷1.21 = £49,587. Year 3: £70,000÷1.331 = £52,594. Year 4: £80,000÷1.464 = £54,645. Year 5: £80,000÷1.611 = £49,659. Total PV = £251,940. NPV = £251,940 − £200,000 = +£51,940. IRR ≈ 19.4%.