Appraise an investment with discounted cash flows: net present value, internal rate of return, profitability index and a clear verdict — accept the project if NPV is positive at your discount rate.
Enter details
£
Cash flows (per period)
30003000300030003000
5 values
One flow per period (year/month 1, 2, 3…). Negative values are allowed (e.g. −5000).
%
The discount rate and the cash flows must use the same period. Defaults are indicative — change them to your own cost of capital.
=Net present value (NPV)
£2,301
IRR (internal rate of return)per year15.2%
Discount rate7.0%
Initial investment£10,000
Total cash in (undiscounted)£15,000
Undiscounted profit£5,000
Profitability index1.23
DecisionPositive NPV — creates value
Accept
Net present value (NPV): £2,301 · IRR (internal rate of return): 15.2% · Accept
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Last updated: 12 July 2026. Uses the standard discounted-cash-flow formulas: NPV = Σ CFₜ/(1+r)ᵗ, with IRR solved iteratively (bisection). The default discount rate (~7%) is indicative — it starts from the Bank of England Bank Rate (3.75%) plus a risk premium; change it to your own cost of capital.
⚖︎ Results are for informational purposes and do not constitute tax advice. For specific situations, consult a licensed accountant or the relevant tax authority.
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iHow it is calculated
NPV (Net Present Value) brings every future cash flow back to today's money and subtracts the initial outlay: a positive NPV means the project earns more than your required rate. IRR (Internal Rate of Return) is the discount rate at which NPV is exactly zero — compare it with your discount rate (cost of capital): if IRR > discount rate, the project is worth it. Pick the annual or monthly period — the rate and the cash flows must use the same period; for monthly flows we also show the annualised IRR.
NPV = −outlay + Σ CFₜ / (1 + r)ᵗ · IRR: the r where NPV = 0
A £10,000 outlay returning £3,000/year for 5 years at a 7% discount rate: NPV ≈ +£2,301 and IRR ≈ 15.2%. Because NPV > 0 and IRR (15.2%) > the rate (7%), you accept the project. The profitability index ≈ 1.23 (£1.23 of present value for every £1 invested).
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?Frequently asked questions
What is NPV (net present value)?
NPV is the sum of a project's cash flows discounted back to today, minus the initial investment. A positive NPV means the project returns more than your required rate; a negative NPV means it destroys value.
What is IRR (internal rate of return)?
IRR is the discount rate at which NPV equals zero — effectively the project's implied annual return. If the IRR is higher than your discount rate (cost of capital), the project is worthwhile.
How do I read the result — accept or reject?
Rule of thumb: accept if NPV > 0 (equivalently, if IRR > your discount rate), reject if NPV < 0. At NPV = 0 the project exactly earns your required rate. The tool shows the verdict automatically.
What discount rate should I use?
Usually your weighted average cost of capital (WACC) or the minimum return you require. As a 2026 UK guide, the Bank of England Bank Rate is 3.75%, so a 6–8% rate (with a risk premium) is reasonable; raise it for riskier projects.
Can I enter negative cash flows?
Yes. Type a negative value (e.g. −5000) for any period where the project needs more money in (reinvestment, a loss year). The tool discounts them correctly.
What do 'multiple IRR' or 'no IRR' mean?
When cash flows change sign more than once (positive → negative → positive), the IRR equation can have several solutions or none. Then you rely on NPV, which stays unambiguous. The tool warns you when this happens.
What's the difference between NPV and IRR?
NPV gives an amount of money (value added); IRR gives a percentage (the return). NPV accounts for project size, IRR doesn't. When the two disagree while ranking two projects, decide on NPV.
What is the profitability index (PI)?
PI = present value of the inflows divided by the initial outlay = 1 + NPV/outlay. Above 1 means a worthwhile project; it's useful for comparing projects of different sizes under a capital constraint.
Annual vs monthly — which do I pick?
Match the period of your cash flows. The discount rate must be for the same period (a monthly rate, not an annual one, for monthly flows). For monthly flows we also show the annualised IRR = (1+monthly IRR)¹²−1.
How is IRR calculated here?
By bisection: we search for the rate where NPV crosses zero across a wide bracket (−99%…+1000%). It's robust and never diverges, unlike simple closed-form approximations — even at very high yields.
Do NPV and IRR account for inflation?
Only if you include it. Either work in nominal terms (nominal flows + nominal rate) or in real terms (real flows + real rate = (1+nominal)/(1+inflation)−1). Don't mix the two.
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