NPV: drag the discount rate
Drag the discount rate. The cash flows stay still, so NPV moves only because the divisor does. Raise the rate and today's value of the receipts falls. It crosses zero at the IRR of this series.
NPV
$1,978.13
Discount rate
8%
Cash is held still. Raise the rate and NPV falls, crossing zero near 15 percent, which is this series IRR. Illustrative arithmetic, not a project decision or advice.
Series
$10,000.00 out, then five times $3,000.00.
In short
- Drag the bar right for a higher discount rate and a smaller NPV.
- Drag it left for a lower rate and a larger surplus.
- Watch the sign flip near 15 percent, which is this teaching-sheet IRR.
- Focus the handle and use the arrow keys to step the rate.
One series, a rate you choose
How NPV and IRR work is the identity. The net present value calculator is the table. NPV against IRR is the pair. Time zero is not discounted.
The rate is an argument
WACC is a common hurdle for cash to the firm. A person might use the rate on a debt they would otherwise pay down. Two careful people can pick different rates and disagree.
Cash, dated
A cash flow needs a date. Present value is that date priced.
Common questions
Why does NPV fall as the rate rises?
Because every future receipt is divided by a larger number. The far years take most of the damage.
What is the rate where NPV is zero?
The IRR of this series, a shade over 15 percent on the teaching sheet.
Is a positive NPV a buy?
It is a surplus at the rate you typed. It is educational material, not advice.
Keep reading
This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.