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NPV, IRR and payback
Evaluate a project from its cash flows.
%
The first value is the initial investment (negative). Separate with commas.
Net present value
$15,718
Positive NPV: the project earns more than the discount rate.
- IRR
- 13.75%
- Payback
- 3.3 years
- Discounted payback
- 4.1 years
- Profitability index
- 1.16
Cash flows
| Year | Cash flow | Present value |
|---|---|---|
| 0 | -$100,000 | -$100,000 |
| 1 | $25,000 | $23,148 |
| 2 | $30,000 | $25,720 |
| 3 | $35,000 | $27,784 |
| 4 | $30,000 | $22,051 |
| 5 | $25,000 | $17,015 |
The formula
NPV = Σ CFₜ ÷ (1 + r)ᵗ IRR: the r where NPV = 0
Accept a project if NPV is positive, or if IRR is above your cost of capital. When they disagree between projects, NPV is the more reliable guide.
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