Payback, NPV and IRR calculator

Does the investment pay for itself, how soon, and what it earns above the cost of money?

Worked out by discounted cash flow: net present value (NPV), internal rate of return (IRR) and both payback periods.

CurrencyHowever you write money in your own books.

Name of the periodWhat you call the unit of time: year, crop year, month. The payback comes out in it. Example: year.

Money you put in up frontEverything that leaves the account to make it exist, added up: equipment, building, installation, freight, the first stock. Example: 300,000.

Minimum rate you accept, per periodThe least this investment has to earn to be worth doing, as a percentage. It comes from the interest on the loan that pays for it, or from what the money earns where it sits today, whichever is higher. Example: 12.

Cash flow of each period

What comes in minus what goes out each period because of this investment, not for the whole farm. It takes a minus sign for a period that loses money, and it takes a blank, which counts as zero. Example: 0 in the first, 80,000 in the second.

The math runs in your browser. We do not send or store anything you type.

Your result

Enter the money you put in and the cash flow of at least one period to see the result. With the minimum rate, the net present value and the discounted payback appear.

Take the decision in writing

The report carries your figures, the three indicators with their reading, the calculation trail step by step, the cash timeline period by period and both scenarios, rate and cash flow, in a document you can print and take to the table where the call gets made.

ArticleDoes this investment pay for itself, or just come back?Two investments with the same payback and opposite answers, with the same worked example as this tool, to the number. It shows where the rate that decides everything comes from, why the two figures disagree, and what to do when the internal rate of return does not exist.Read the full article

Payback, NPV and IRR

Your inputs

Your result

Calculation trail

What these numbers say

The net present value is what is left after the investment gives back what it cost and pays the rate you asked for, and it is the figure that decides whether the purchase creates value. The internal rate of return says what the money earns per period inside the investment, to set against the rate you asked for. The two payback figures do not measure profitability: they measure how long the money stays out of the account, and it is your loan term they talk to.

Understand the method in full

The full article shows two investments with the same payback and opposite answers, where the rate that decides everything comes from, and what to do when the internal rate of return does not exist.

Read the full article

How to read it

The cash flows are your own forecast, not a measurement, and the arithmetic is exact about the list you typed, not about what will happen. The minimum rate is your choice too, and the whole answer moves with it: the rate scenario in the report exists to show how much. The payback comes out with the fraction of the period interpolated, which assumes money arriving evenly inside the period; on a single-harvest crop that fraction is an order of magnitude, not a date. And the arithmetic sets this investment against doing nothing, not against the alternative that would take the same money.

The sources

Getting your money back is not the same as earning anything. Two investments can return what they cost over the same stretch and sit on opposite sides of the decision, because payback stops counting on the day the money comes back. Enter what you put in, the least you will accept, and the cash flow of each period, and see the three figures together, with the cash timeline.

Two purchases can return your money in the same two periods and sit on opposite sides of the decision: at 12 percent a period, one loses you 46,492 and another with the identical payback creates 125,833, a distance of 172,325 the payback figure never sees.

The gap is why the tool reads all four figures together, following Damodaran’s rule that cash flows from different dates cannot be added without first bringing them to the same point in time. It does not say any investment should be made; it discounts the flows you type against a rate you choose and can defend.