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📊 Net Present Value (NPV)

Assess project profitability with NPV, IRR and discounted payback period

⚙️ Project parameters
💵 Net cash flows
Net Present Value (NPV)
$10,670.75
Project creates value (21.3 % above the bar)
Internal Rate of Return (IRR)
14.96 %
Rate that makes NPV zero
Payback period
4.36 yr
Time to break even (discounted)
Profitability Index (PI)
1.213
PI = (NPV + I₀) / I₀
📋 Flow details
Period Cash flow Discount factor Discounted flow Cumulative discounted ✕
Year 10.9259$11,111.11$11,111.11
Year 20.8573$12,002.74$23,113.85
Year 30.7938$11,907.48$35,021.34
Year 40.7350$11,760.48$46,781.82
Year 50.6806$8,847.58$55,629.40
Year 60.6302$5,041.36$60,670.75
NPV (sum) $78,000.00 $60,670.75 $10,670.75
⚠️ Calculix.ca provides tools for informational purposes only. These calculations do not replace personalized advice from a financial planner or accountant.

Net present value (NPV) and internal rate of return (IRR) — guide for Québec SMBs

NPV and IRR are the two most-used indicators to decide whether an investment project is worth pursuing. Whether you're evaluating a new machine, a real-estate project, software development or a business acquisition, these two tools tell you how much value will be created and what the actual return on the project will be.

Our calculator lets you enter the initial investment, expected cash flows year by year, and the discount rate (cost of capital). It computes NPV, IRR and payback period in one click. Ideal for entrepreneurs, financial controllers, finance students and planners.

What exactly is NPV?

Net present value (NPV) is the sum of a project's future cash flows, brought back to today's dollars using a discount rate. The logic: a dollar received in 5 years is worth less than a dollar received today (because of inflation, risk and opportunity cost).

NPV = − Initial investment + Σ (Flowt ÷ (1+r)t)

How to interpret

  • NPV > 0: the project creates value. Acceptable.
  • NPV = 0: the project earns exactly the discount rate. Neutral.
  • NPV < 0: the project destroys value. Reject.

When choosing between mutually exclusive projects, pick the one with the highest NPV.

NPV vs IRR — what's the difference?

The internal rate of return (IRR) is the discount rate that makes NPV equal to zero. In plain terms, it's the project's effective return. We read it as a percentage: "this project returns X% per year".

Decision rule with IRR

Accept the project if IRR > cost of capital. If IRR is lower, the project doesn't cover your funding cost.

Example: your SMB borrows at 7%. A project has a 12% IRR — you earn 5% over your borrowing cost. Green. Another has a 4% IRR — you lose 3% versus your borrowing cost. Red.

When to prefer NPV over IRR

IRR can mislead when flows change sign multiple times (multiple IRRs) or when comparing projects of very different sizes. When in doubt, NPV wins: it directly measures value creation in dollars.

Example — buying a machine for a Saguenay SMB

A manufacturing SMB in Saguenay is considering a new production line for $250,000. Management expects additional net cash flows of $70,000/year over 5 years, plus a $30,000 resale value in year 5. The company's cost of capital is 8%.

Calculation:
Year 0: −$250,000
Year 1: 70,000 ÷ 1.08 = $64,815
Year 2: 70,000 ÷ 1.08² = $60,014
Year 3: 70,000 ÷ 1.08³ = $55,568
Year 4: 70,000 ÷ 1.08⁴ = $51,452
Year 5: (70,000 + 30,000) ÷ 1.08⁵ = $68,058
NPV ≈ +$49,907, IRR ≈ 14.8%.

Decision: positive NPV and IRR clearly above cost of capital. Project is profitable and should be accepted.

How to choose the discount rate

The discount rate (often noted r) reflects the cost of capital and the project risk. The higher it is, the more you penalize distant future flows.

Benchmarks for a Québec SMB

  • Low-risk project (replacing existing equipment, certain savings): 5% to 8%.
  • Medium-risk project (expansion in a known market, launching a proven product): 8% to 12%.
  • High-risk project (new market, R&D, startup): 15% to 25%+.

WACC (weighted average cost of capital) is the sophisticated version: weighted average of after-tax cost of debt and cost of equity. For a small business with no structured debt, the bank lending rate plus a risk premium is often used.

In Québec, support programs from Investissement Québec or BDC can affect the effective rate via preferential loans or grants.

Frequently asked questions

Doesn't a positive NPV always mean "good investment"?

Not exactly — it means the project earns more than your required rate. But with several projects and a limited budget, pick the one with the highest NPV per dollar invested (the profitability index).

What's the difference between NPV and ROI?

ROI is a simple ratio (gain ÷ investment) that ignores timing. NPV accounts for when each dollar comes in or goes out. For multi-year projects, NPV is significantly more accurate.

Should I include taxes in the cash flows?

Yes. Use after-tax cash flows. In Québec, the combined federal + provincial rate for a large corporation is ~26.5%, and for an SMB qualifying for the small-business deduction, ~12.2%.

What's the payback period?

It's the number of years needed to recover the initial investment via cash flows. A useful complement, but it ignores everything that happens after. Use it as a quick filter, not the sole criterion.

Does the calculator work for monthly flows?

Use flows in the frequency consistent with the rate. An 8% annual rate equals a monthly rate of (1.08)^(1/12) − 1 ≈ 0.643%. Most practical analyses stay in annual flows.