Aalekh
All calculators
For Chartered AccountantsRates reviewed September 2026

NPV and IRR Calculator for a Project Report

A project report for a term loan ends with the same three numbers whichever bank it goes to: the net present value of the project's cash flows, the internal rate of return, and the payback period. None of them is prescribed by the Reserve Bank, whose Master Circular on Management of Advances leaves the method of appraisal to each bank, but every credit officer reads them and every template asks for them. The formulae are the ones in the ICAI Financial Management study material, and this page applies them exactly.

Net present value discounts each year's cash flow back to today at a chosen rate and subtracts the initial outlay. A positive NPV means the project earns more than that rate; a negative one means it earns less. The internal rate of return is the discount rate at which NPV is exactly nil, so it is the project's own yield, and the decision rule is to accept when IRR is above the rate you would otherwise have used. There is no closed-form formula for IRR, so this calculator solves it numerically by bisection until the NPV is within a rupee of zero.

The discount rate is the judgement call. Bank templates usually take the lending rate on the proposed term loan, sometimes with a margin, and a promoter appraising the same project would use a hurdle rate closer to the cost of equity. The verdict on this page is read against whatever rate you enter, so try both. Comfort levels such as a DSCR of 1.25 or a payback inside the loan tenor are bank conventions rather than rules, and different banks apply them differently.

Enter the annual cash flows as separate years. Years left at zero after the last non-zero year are ignored, so a five-year project does not have to fill all eight fields, while a zero in the middle of the series is treated as a genuine nil year. An optional terminal value, for salvage or a sale at the end, is added to the last year's cash flow.

NPV & IRR Calculator

The outlay at the start of year 1, entered as a positive figure.

₹

The lending rate for a bank appraisal, or the promoter's hurdle rate.

%

Profit after tax plus depreciation, less working capital absorbed. Leave later years at nil if the project is shorter.

₹
₹
₹
₹
₹
₹
₹
₹

Salvage or sale proceeds, added to the final year's cash flow. Leave at nil if there are none.

₹

Net present value

₹8,27,210

IRR 17.94% against a 12% discount rate

Present value of inflowsat 12% over 5 years, including the terminal value
₹58,27,210
Net present value₹58,27,210 less the outlay of ₹50,00,000
₹8,27,210
Internal rate of returnthe rate at which NPV is nil, solved by bisection
17.94%
Simple payback periodrecovered during year 4
3.28 years
Discounted payback periodon the cash flows discounted at 12%
4.27 years
Profitability indexpresent value of inflows per rupee invested
1.17
Total undiscounted inflows₹33,00,000 more than the outlay before discounting
₹83,00,000
Verdict against the discount rateIRR 17.94% is above 12% and NPV is positive
Accept
  • The discount rate is a judgement. Banks usually take the lending rate on the term loan, and a promoter a higher hurdle rate, so read the verdict against the rate you entered.
  • Comfort levels such as a payback inside the loan tenor or a DSCR of 1.25 are bank conventions rather than rules. The Reserve Bank leaves the method of appraisal to each bank.

The formula

NPV = Σ CFt ÷ (1 + r)^t - Initial investment; IRR is the r at which NPV = 0; Payback = years until cumulative cash flow turns positive; Profitability index = PV of inflows ÷ Initial investment

CFt
The net cash flow in year t, after tax and after working capital changes, with any terminal value added to the final year.
r
The discount rate, usually the lending rate for a bank appraisal or the hurdle rate the promoter wants the project to clear.
Initial investment
The outlay at the start of year 1, taken as a single cash outflow at time zero.
Discounted payback
The same test as simple payback, but run on the discounted cash flows, so it is always longer.
Profitability index
Present value of inflows per rupee of outlay, so a project with an index above 1 has a positive NPV.

Fractional payback years are found by straight-line interpolation inside the year in which the cumulative cash flow crosses zero, which assumes the cash arrives evenly through the year. IRR is solved by bisection on the interval between minus 99 percent and the rate at which NPV turns negative.

How to calculate it

  1. 1

    Build the cash flows before touching a discount rate

    Take each year's projected profit after tax, add back depreciation and other non-cash charges, and deduct any additional working capital the year absorbs. That is the cash flow a bank discounts. Interest is left out, because the discount rate already prices the cost of the money, and counting it twice understates the project.

  2. 2

    Choose the discount rate and say why

    For a bank appraisal use the rate on the proposed term loan, which is what the credit officer will use to recompute your figures. For the promoter's own decision use a hurdle rate that reflects the risk of the venture, which is normally higher. State the rate on the face of the report so nobody has to guess it.

  3. 3

    Discount each year and sum

    Divide each year's cash flow by (1 + r) raised to the year number, add the results, and subtract the initial outlay. A positive NPV means the project earns more than the discount rate. The size of the NPV relative to the outlay is what the profitability index captures, and it is the better measure when comparing projects of different sizes.

  4. 4

    Find the IRR and compare it with the discount rate

    IRR is the rate that brings NPV to nil. On a conventional series, one outflow followed by inflows, there is exactly one such rate and it sits above the discount rate whenever NPV is positive. If the series changes sign more than once, because of a mid-life capital expenditure for example, there can be more than one IRR and the NPV verdict should be preferred.

  5. 5

    Check the payback against the loan tenor

    Simple payback counts the years until cumulative inflows equal the outlay. Discounted payback runs the same count on the present values and is always longer. A bank will usually want the discounted payback well inside the tenor of the term loan, because the instalments have to be paid out of the same cash flows.

  6. 6

    Present the verdict in the report, with the sensitivity

    Give NPV, IRR, payback and the profitability index together, then show what happens to each if revenue falls by 10 percent or the discount rate rises by two points. A project whose IRR is only a point above the lending rate has no room for either, and the credit officer will find that out whether or not you show it.

What each measure tells a credit officer

What each measure tells a credit officer
MeasureDecision ruleWhat it misses
Net present valueAccept if above zero at the chosen rateSays nothing about the size of the outlay needed to earn it
Internal rate of returnAccept if above the discount or hurdle rateCan be multiple or undefined when the cash flows change sign more than once
Profitability indexAccept if above 1.00Ranks projects by return per rupee, so it can favour a small project over a larger one with a bigger NPV
Simple paybackShorter is safer, usually inside the loan tenorIgnores the time value of money and everything after the payback year
Discounted paybackShorter is safer, always longer than simple paybackStill ignores cash flows after the payback year

Worked example

Initial investment
₹50,00,000
Discount rate
12%
Cash flows, years 1 to 5
₹12,00,000, ₹15,00,000, ₹18,00,000, ₹18,00,000 and ₹15,00,000
Terminal value at the end of year 5
₹5,00,000
  • Year 5 inflow including the terminal value = ₹15,00,000 + ₹5,00,000 = ₹20,00,000
  • Present value of each year at 12%: ₹10,71,429, ₹11,95,791, ₹12,81,204, ₹11,43,933 and ₹11,34,854, totalling ₹58,27,210 before rounding
  • NPV = ₹58,27,210 - ₹50,00,000 = ₹8,27,210
  • IRR is the rate at which NPV is nil, found by bisection: 17.94%
  • Simple payback: cumulative inflows reach ₹45,00,000 after year 3, and the remaining ₹5,00,000 is ₹5,00,000 ÷ ₹18,00,000 = 0.28 of year 4, so 3.28 years
  • Discounted payback: ₹3,07,644 remains after year 4 and year 5 contributes ₹11,34,854, so 4 + 0.27 = 4.27 years
  • Profitability index = ₹58,27,210 ÷ ₹50,00,000 = 1.17

NPV ₹8,27,210 and IRR 17.94% against a 12% discount rate, so the project clears the hurdle with a payback of 3.28 years

Frequently asked questions

NPV is a rupee figure: the present value of the project's cash flows at a chosen discount rate, less the outlay. IRR is a percentage: the discount rate at which that NPV would be exactly nil, so it is the yield the project itself earns. They agree on whether a single project clears a hurdle, because NPV is positive exactly when IRR is above the discount rate, but they can rank two projects differently when the outlays or the timing of the cash flows differ.
Most bank templates discount at the interest rate on the proposed term loan, sometimes with a margin of a point or two, because that is the cost of the money being lent. A promoter deciding whether to proceed should use a higher hurdle rate that reflects the risk of the venture and the return equity could earn elsewhere. The Reserve Bank does not prescribe a rate or a method, so state the rate you used on the face of the report.
IRR is the root of a polynomial in the discount rate, and for more than a couple of years there is no closed form, so it is found numerically. This calculator brackets the rate between minus 99 percent and a rate at which NPV has turned negative, then bisects the interval repeatedly until NPV is within a rupee of nil. Spreadsheet IRR functions and the interpolation method in the ICAI study material arrive at the same figure, the interpolation being slightly less precise.
IRR exists only when the cash flows change sign at least once, which for a normal project means an outlay followed by inflows. If every figure is an outflow there is no rate at which they sum to nil, and if there is no initial investment the NPV is simply the sum of the discounted inflows and cannot be brought to zero. A series that changes sign more than once can have several IRRs, in which case the NPV at the chosen rate is the figure to rely on.
Simple payback adds up the raw cash flows until they equal the outlay. Discounted payback adds up the present values instead, and because every future rupee is worth less than a rupee today, it takes more years of cash flows to reach the same total. The gap between the two widens as the discount rate rises, which is why a bank appraising at a high lending rate will see a discounted payback well beyond the simple figure.
No. The Reserve Bank leaves the assessment of a term loan to each bank, and its Master Circular on Management of Advances prescribes no coverage ratio or payback test. Figures such as a minimum DSCR of 1.25, an average of 1.50 across the tenor, or a discounted payback inside the repayment period are internal comfort levels that banks have converged on. They are worth meeting because the credit officer will apply them, but they can be argued with in a way a statutory threshold cannot.
The terminal value is whatever the project's assets are expected to fetch at the end of the horizon, whether a salvage value for machinery or the sale of the business. It is a cash inflow received at the end of the last year, so this calculator adds it to that year's cash flow before discounting. Leave it at nil if the assets will be fully worn out, and be conservative when the figure is large relative to the annual cash flows, because a credit officer will discount an optimistic terminal value before anything else.

Sources

Rates and rules on this page come from the following. This is a working aid, not professional advice: confirm anything material with your Chartered Accountant before you act on it.

Stop re-keying these figures

Aalekh runs this calculation on your actual client data, pulls the underlying ledgers straight from Tally, and carries the result through to the financial statements and the return.

Get StartedBook a demo

Related calculators