Calculate net present value and internal rate of return for investment cash flows. Compare projects on timeline diagrams.
An investment cash-flow series becomes two answers here: its value today at a selected per-period discount rate, and the break-even rate that makes that value zero. Record outlays as negative cash flows and receipts as positive amounts. Timeline diagrams show when each amount occurs and help compare projects side by side. The usual source of a surprising result is mismatched periods. If cash flows are monthly, the discount rate must also be monthly; an annual percentage cannot be used unchanged.
A concrete input and expected output from the current implementation.
Input
Discount rate per period: 5% Cash flows: period 0 = -1000; period 1 = 1100
Expected output
NPV: 47.62 IRR: 10.00%
At 5 percent, -1000 + 1100 / 1.05 = 47.6190476, which rounds to 47.62. Solving -1000 + 1100 / (1 + r) = 0 gives r = 0.10, so the IRR is 10 percent.
For cash flow C at period t and discount rate r, the present value is C / (1 + r)^t. The calculator adds those present values to obtain NPV. A period-zero amount is not discounted because its exponent is zero. Later receipts contribute less at higher discount rates, while later costs contribute negative present values of smaller magnitude.
IRR is a rate r for which the same discounted cash-flow series has NPV equal to zero. Unlike NPV, it does not use the selected comparison rate as its answer. Project timelines make differences in scale and timing visible, which matters because NPV and IRR can rank competing projects differently even when both calculations are correct.
No. IRR is a percentage and can favor a smaller project or one with earlier receipts even when another project adds more value at the chosen discount rate. For mutually exclusive alternatives, compare their NPVs using a rate appropriate to both, then inspect the timelines to understand any disagreement between the rankings.
No. It means the entered cash flows, discounted at the entered rate, have a positive calculated value at period zero. The result remains conditional on those forecasts and on the suitability of the discount rate. Actual receipts may differ, so test alternative cash flows and rates when the assumptions are uncertain.
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