Calculate discount rates and present value from future cash flows. Part of the DevTools Surf developer suite. Browse more tools in the Calculators collection.
Use Cases
Evaluate whether a business investment's future cash flows justify today's capital outlay.
Compare lease vs. buy decisions by discounting all future lease payments to present value.
Value a bond by discounting its coupon payments and par value to today.
Assess lottery payout options: lump sum vs. annuity at a given discount rate.
Tips
Use the real (inflation-adjusted) discount rate when comparing cash flows across long time horizons — nominal rates overstate future value.
For multiple cash flows at different times, calculate each present value separately and sum them for total NPV.
Sensitivity-test your discount rate assumption by running calculations at +/- 2% — NPV can shift dramatically over 10+ year periods.
Fun Facts
The concept of discounted cash flow (DCF) was formalized by John Burr Williams in his 1938 book 'The Theory of Investment Value' — still considered foundational to modern valuation.
Warren Buffett has described DCF analysis as the only correct method for valuing a business, though he notes it requires accurate long-term cash flow forecasts that are rarely achievable.
A dollar invested at 7% annual return doubles roughly every 10 years (Rule of 72); conversely, a dollar received 10 years from now is worth about $0.51 today at 7% discount.
FAQ
What discount rate should I use?
Use your opportunity cost of capital — the return you could earn on the next best alternative. For businesses, WACC (weighted average cost of capital) is standard. For personal finance, use your expected investment return rate.
What's the difference between PV and NPV?
PV is the present value of future cash flows. NPV subtracts the initial investment from PV. Positive NPV means the investment creates value above the discount rate hurdle.
