NPV and IRR calculator

Enter a project's cash flows, the first being today's, and a discount rate. It gives the net present value, the internal rate of return, and whether to accept the project.

How it works

NPV = Σ CF_t ÷ (1 + r)^t, t = 0, 1, …, N

The IRR is the rate that makes the NPV zero. A project is worth doing when its NPV is above zero, which for conventional cash flows (one outflow, then inflows) is the same as its IRR being above the required return.

A worked example

A project costs 1,000 today and returns 300, 420 and 680 over the next three years. At a 10% discount rate the NPV is 130.73, so it adds value. The IRR is 16.34%: the rate at which the NPV falls to zero. Because the IRR is above 10%, the two rules agree.

Common mistakes on the exam

The first cash flow is at time 0 and is not discounted; discounting it is the most common slip.
When flows change sign more than once there can be several IRRs, or none. NPV is always well defined, which is why it is the preferred rule.
IRR and NPV can rank mutually exclusive projects differently, because IRR ignores scale and assumes reinvestment at the IRR. Choose by NPV.

The exam allows only certain calculator models, and the rules change: check CFA Institute's current calculator policy before you rely on any keystroke here.

Where this is taught

Work out net present value and the internal rate of return CFA Level I · Quantitative Methods
Differentiate the internal rate of return and time-weighted return when applied to alternatives CFA Level I · Alternative Investments
Work out a project's internal rate of return and net present value, and explain each CFA Level I · Corporate Issuers

Read the guide

NPV vs IRR: which capital budgeting rule to trust

Practise what you read

Today's practice question One question, with every wrong option explained.
Free Level I diagnostic test Twelve questions that show which topics to start with.
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Questions people ask

What does a positive NPV mean?

The present value of the inflows exceeds the cost at your required return, so the project adds that much value. A negative NPV destroys value at that required return.

Why can there be more than one IRR?

The IRR is a root of a polynomial in (1 + r). Every time the cash flows change sign there can be another root, so a project with an outflow, then inflows, then a closing outflow can have two.

Should I use NPV or IRR?

NPV, whenever they could disagree. NPV measures the value created in currency; IRR is a rate, which says nothing about scale and can mislead on mutually exclusive projects.

Practise this until the arithmetic is automatic: questions on every topic, with the reason each wrong option is wrong.

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