Investment appraisal
| Year | Cash flow | Discount factor | Present value | Cumulative cash flow | Cumulative PV |
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IRR is found by trial and improvement. If cash flows change sign more than once, a project can have more than one IRR, so rely on NPV for the decision.
Deciding whether a project is worth the investment comes down to a few numbers. This free calculator finds the net present value (NPV), internal rate of return (IRR), payback period, discounted payback and profitability index from your cash flows. A year-by-year table shows discount factors, present values and cumulative totals, so you can follow every step. It is ideal for ACCA FM and AFM, CA, and finance students, as well as small business owners.
How to Use:
- Enter the discount rate (your cost of capital) as a percentage.
- Enter the initial investment made today (Year 0).
- Fill in the net cash flow for each year, and add more years if you need them.
- Click Calculate to see the NPV, IRR, both payback periods and the full table.
- A positive NPV means the project adds value at your chosen discount rate.
FAQs:
Q: What is NPV?
A: Net present value is the value of all future cash flows in today’s money, minus the initial investment. A positive NPV means the project beats your required return.
Q: What is IRR?
A: The internal rate of return is the discount rate at which NPV equals zero. If it is higher than your cost of capital, the project is usually worth accepting.
Q: What is the difference between payback and discounted payback?
A: Payback ignores the time value of money. Discounted payback uses present values, so it is longer and more realistic.
Q: Can I enter negative cash flows in later years?
A: Yes. Use a minus sign for any year with an outflow.
