Discounting Calculator — NPV & Present Value

Discounting converts future cash flows to present value. Formula: PV = CF / (1+r)^n. Money today is worth more than money tomorrow due to inflation, investment opportunity, and risk. Higher discount rate = lower present value. This calculator discounts each cash flow to Year 0 and sums them to get NPV.

NPV = Sum of all discounted cash flows including the initial investment (as negative). NPV > 0: investment creates value, accept. NPV = 0: return equals your discount rate exactly. NPV < 0: investment destroys value at given rate, reject. NPV is the gold standard for capital allocation decisions.

It depends on the risk profile: 6-8% for FD/government securities equivalent. 10-12% for moderate equity-linked risk. 15-25% for high-risk ventures, real estate, or startups. Corporate projects use WACC. For personal finance, use your best alternative investment return (opportunity cost).

Discount Factor = 1/(1+r)^n. At 10%: Y1=0.909, Y2=0.826, Y5=0.621, Y10=0.386. Multiply any future amount by its discount factor to get present value. Rs.10L received in Year 5 at 10% = Rs.10L × 0.621 = Rs.6.21L today. Factors always decrease — money further in future is worth less now.

NPV gives rupee value created at your specific discount rate. IRR gives the rate where NPV = 0. When NPV > 0 at your required return, IRR > required return. NPV is generally preferred for decisions because it accounts for project scale. Use the IRR Calculator on CalcDesk to find the exact break-even rate.

PI = (NPV + Initial Outlay) / Initial Outlay. PI > 1: accept (creates value). PI < 1: reject. PI = 1: break-even. PI is useful when comparing projects of different sizes — a small project with PI 1.5 may be better than a large one with PI 1.1 if capital is limited. Also called Benefit-Cost Ratio.