NPV and IRR Calculator for Investment Decisions

Initial investment (₹)

Discount rate (% per year)

Cash flow in each year (₹, a blank year counts as 0)

Enter the investment as a positive number. Cash flows are what the project brings in (or costs) at the end of each year, and can be negative.

What do NPV and IRR tell you?

Net present value (NPV) and internal rate of return (IRR) are the standard ways to judge whether an investment is worth making. Both recognise that money received later is worth less than money today. NPV gives a rupee answer: how much value the project adds after covering your required return. IRR gives a percentage: the yearly return the project itself earns.

Formulas

NPV = −investment + Σ cash flow ÷ (1 + discount rate)^year. The IRR is the discount rate that makes NPV exactly zero. Payback is how many years the cash flows take to repay the investment. Profitability index = present value of future cash flows ÷ investment.

Worked example

You invest ₹10,00,000 and expect ₹3,00,000, ₹4,00,000, ₹4,00,000 and ₹3,00,000 over four years. The discount rate is 10%.

NPV is about ₹1,08,736, so the project beats a 10% return. The IRR is about 14.90%. Simple payback is 2.75 years, discounted payback is about 3.47 years, and the profitability index is 1.11.

Frequently asked questions

What discount rate should I use?

Use the return you could earn elsewhere at similar risk, or your cost of borrowing. Many businesses use a hurdle rate such as 10% to 15%. Try a few rates to see how sensitive the answer is.

What is a good IRR?

One that is higher than your discount rate or hurdle rate. An IRR of 14.9% beats a 10% requirement but would fail a 20% one.

Why might IRR be 'not defined'?

IRR needs the cash flows to change from negative to positive at least once. If every flow has the same sign, no rate makes NPV zero.

When should I trust NPV over IRR?

When cash flows change sign more than once, or when comparing projects of different sizes. NPV always gives a clear answer, while IRR can have several or none.

How is this different from XIRR?

This works with equal yearly periods. XIRR handles cash flows on exact, irregular dates, so use the XIRR calculator for those.

Results are estimates for information only and are not financial, tax or legal advice.