Capital Project NPV, IRR & Payback Calculator

How the capital project npv, irr & payback calculator works

Net present value is the negative time-zero outlay plus the discounted year-end cash flows. The signed residual amount is added to year 3. Cash flows are annual and evenly spaced; this is not an irregular-date XIRR model. Each discounted annual amount rounds to cents before NPV is summed.

Simple and discounted payback report the first year-end cumulative balance that is nonnegative. They do not interpolate when money arrives within a year or guarantee that later cash remains positive. IRR uses numerical bisection for a positive initial outlay and exactly one nonzero cash-flow sign change. More sign changes, no sign change or an unbracketed numerical solution gives an unavailable IRR rather than a fabricated root.

NPV and IRR answer different questions, and a ranking is not an investment decision. Cash-flow scope, residual value, risk and the discount rate are entered assumptions. Financing, taxes and opportunity costs appear only if included consistently in those cash flows.

Worked example

An outlay of 100 followed by 50 at each of three year ends has NPV 50 at a zero discount rate. Cumulative cash first becomes nonnegative at year 2; discounted payback is also year 2. Its single-sign-change IRR is approximately 23.375%. Raising the initial outlay to 120 reduces zero-rate NPV to 30 and moves the first nonnegative year end to year 3.

Sources and assumptions

The source material explains the underlying calculation or pricing structure. Entered prices, costs, schedules and scenario choices are your assumptions; this tool does not obtain supplier quotes or predict actual results.

• CFI: discounted cash flow formula and terminal assumptions
• Microsoft: periodic IRR and numerical solution