IRR & Net Present Value (NPV) Calculator
Net Present Value (NPV) and Internal Rate of Return (IRR) are the gold standards for capital budgeting and investment analysis. Determine whether a project creates economic value above its hurdle discount rate.
Sensitivity Analysis
Evaluate how variations in key operational drivers impact Net Present Value (NPV).
| Sensitivity Case | Assumption Shift | Driver Value | Net Present Value (NPV) | Impact vs Base |
|---|
Formula & Methodology
NPV = Sum(CashFlow_t / (1 + r)^t) - Initial OutlayC0Upfront cash investment (Year 0).
rCost of capital or required minimum rate of return.
CtNet cash inflows generated in years 1 through 5.
Practical Worked Example
A company evaluates a Rs 10,00,000 equipment purchase expecting annual net cash inflows of Rs 3,00,000 to Rs 4,00,000 over 5 years with a 12% cost of capital.
Interpretation & Industry Benchmarks
NPV measures absolute wealth added, whereas IRR measures internal rate of efficiency.
Creates positive economic shareholder value.
Fails to meet minimum cost of capital.
Industry Nuance: When comparing mutually exclusive projects with different scales, NPV is the superior decision metric over IRR.
Analytical Limitations
- Assumes interim cash flows can be reinvested at the IRR rate rather than the cost of capital.
Frequently Asked Questions
What is the decision rule for NPV and IRR?
Accept any project with an NPV > 0 and an IRR exceeding the corporate weighted average cost of capital (WACC).