TL;DR
- NPV > 0 means the investment beats your cost of capital over the horizon.
- The discount rate is your real financing or opportunity rate, not a guess.
- NPV is the only one of the standard metrics that handles timing correctly.
ROI treats a euro in month 60 as equal to a euro in month 1. For a five-year machine decision financed at 8%, that error is large enough to reverse a ranking.
NPV = −Investment + Σ (CF_m / (1 + r)^m)
- CF_m = net cash flow in month m
- r = monthly discount rate = annual rate / 12
- m = 1 … horizon
€100,000 investment, €3,200/month, 48 months, 8% p.a.
- Undiscounted total
- €153,600
- Discounted total
- ≈ €131,000
- NPV
- ≈ €31,000 — the investment beats 8% capital cost
Choosing the discount rate
- Financed purchase: use the effective loan or lease rate.
- Cash purchase: use what the money would otherwise earn, plus a risk premium.
- Uncertain demand: raise the rate rather than shrinking the benefit twice.
Interactive example
Investment, monthly benefit — payback, ROI and NPV
- Payback
- 11.8 months
- ROI over 36 months
- 206 %
- NPV
- € 171.250
Same calculation kernel as the full calculators. For a decision-grade result, open the matching calculator.
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