A dollar next year is worth less than a dollar now — you could have invested it, and risk and inflation gnaw at it. Discounting shrinks each future cash flow back to today's money; add them up, subtract what you put in, and you get the net present value. If it's positive, the payoff beats your cost of money. The rate where it breaks even is the return the project itself earns. Discounting is just compound growth run in reverse — shrinking future money instead of growing today's.
In today's money, this creates €25 816 of value above the €50 000 you put in.
Each bar is a year's cash flow; the solid part is what it's worth discounted to today, the faint cap is the value the discount rate eats away — and it eats more the further out you look. The line is the running total, starting in the hole by your investment and climbing as the discounted returns land; where it crosses zero is payback, and where it ends is the NPV.
| Discount rate | Net present value |
|---|---|
| 0% | +€50k |
| 5% | +€37k |
| 8% | +€30k |
| 10%now | +€26k |
| 15% | +€17k |
| 20% | +€9,8k |
| 30% | −€1,3k |
The higher your cost of money, the less a future payoff is worth now — so NPV falls as the rate climbs, and tips negative once you pass the break-even rate. Click a rate to load it above.