Most people decide whether to start a business, buy a machine, open a second branch, or launch a product the same way: they estimate what it costs, guess what it will earn, divide one by the other, and if the answer feels good, they go ahead. That arithmetic is not wrong so much as incomplete. It quietly assumes that money arriving in month forty is worth exactly as much as money arriving today, that costs stay frozen for five years, that taxes are somebody else's problem, and that the capital you are about to commit has no other use in the world.
The project feasibility calculator on this page exists to replace that guess with a model. It takes the handful of numbers you already know — what the project costs upfront, what it earns and spends each month, how long it will run, and what return you require — and returns the eleven figures that professional analysts actually look at: net present value, internal rate of return, return on investment, profitability index, simple and discounted payback periods, total revenue, total cost, total tax, net profit, and the minimum monthly revenue that would keep the project from destroying value.
This guide is the long-form companion to that tool. It explains what every input means, how every output is calculated, how to choose the one number almost everyone gets wrong (the discount rate), and how to read the results without fooling yourself. It includes reference tables you can use on paper, three fully worked examples with real figures, a section on the mistakes that quietly ruin feasibility studies, and a glossary. Whether you are writing a formal feasibility study for a bank, sizing a side project, or simply deciding whether a purchase pays for itself, everything you need is below.
What is in this guide
- What feasibility actually means, and the three words people confuse with it
- The time value of money, and the rate conversion most spreadsheets get wrong
- Every input in the calculator, and how to estimate it honestly
- Every output, with its formula and how to interpret it
- Quick-reference tables: rate conversions, discount factors, annuity factors, growth doubling times
- Three worked examples: a coffee shop, a delivery van, and a small software product
- The trap of a project that is profitable on paper and value-destroying in reality
- Stress testing, decision rules, sector notes, common mistakes, and a full FAQ
What feasibility actually means — and what it does not
In everyday speech, "feasible" means "doable." In investment analysis it means something narrower and far more useful: a project is financially feasible when the value it creates, measured in today's money, exceeds the value of the capital and effort it consumes. That definition contains a comparison, and the thing being compared against is not zero. It is the next best thing you could have done with the same money.
The four layers of a feasibility study
A complete feasibility study has four layers, and this calculator addresses the fourth. Skipping the first three and jumping straight to the spreadsheet is the most common way to produce a beautiful model of a project that should never exist.
| Layer | The question it answers | How you test it |
|---|---|---|
| Market feasibility | Do enough people want this, at a price they will pay? | Customer interviews, competitor pricing, pre-orders, footfall counts, search volume |
| Technical feasibility | Can it actually be built, sourced, or delivered at the assumed quality? | Supplier quotes, prototypes, site surveys, capacity calculations |
| Operational and legal feasibility | Can you run it day to day, legally, with the people you have? | Licences, permits, staffing plan, lease terms, insurance, compliance review |
| Financial feasibility | Does it create value after accounting for time, risk, and taxes? | Discounted cash flow analysis — this calculator |
Feasible, profitable, and viable are three different words
These get used interchangeably and they should not be. A project can be any combination of the three.
- Profitable means total revenue exceeds total cost at some point. It ignores time completely. A project that returns your money plus ten percent over seven years is profitable and almost certainly a bad idea.
- Feasible means the discounted value of what comes in exceeds the discounted value of what goes out. This accounts for time and for your required return.
- Viable means you can survive the journey. A feasible project with a thirty-month payback will still kill you if your cash runs out in month eighteen. Viability is about liquidity and financing, not value.
You need all three. The calculator measures the first two directly and gives you the payback figures that hint at the third.
The idea that separates guessing from analysis: the time value of money
One thousand today is not the same as one thousand in three years. This is not inflation — it is true even with zero inflation. Money in your hand can be deployed: it can earn interest, retire debt, buy inventory that turns over four times a year, or simply sit in a treasury bill. Money that arrives in three years cannot do any of those things in the meantime, and it carries the risk that it never arrives at all.
Discounted cash flow analysis puts a price on that difference. Every future amount is divided by a growth factor to express it in today's money. The formula is simple and it is the backbone of everything the calculator does:
Present value = Future amount ÷ (1 + r)^t
where r is the rate per period and t is the number of periods away. Everything else — net present value, internal rate of return, discounted payback, the profitability index — is built from this one line.
Why a monthly model beats an annual one
Many feasibility templates model in years. That is a mistake for small and medium projects for three reasons. First, most real cash flows are monthly: rent, salaries, subscriptions, loan instalments. Second, annual models cannot express a payback period of nineteen months without rounding it to "about two years," which hides exactly the information that matters when you are deciding whether your cash reserve survives. Third, annual discounting implicitly assumes all of a year's cash arrives on the last day of that year, which systematically understates the value of early cash flows.
This calculator models every single month from month one to the end of the horizon, discounting each one individually. A sixty-month project produces sixty discounted cash flows, not five.
The rate conversion that most spreadsheets get wrong
Here is the detail that separates a correct model from an approximate one. If your required annual return is 12%, the monthly rate is not 12 ÷ 12 = 1%. A rate of 1% compounded monthly produces 12.68% a year, not 12%. The correct conversion is the geometric one:
Monthly rate = (1 + annual rate)^(1 ÷ 12) − 1
The calculator uses this exact conversion for the discount rate and for both growth rates. The difference looks trivial and is not: at high rates over long horizons it moves the net present value by several percent, always in the direction of making projects look better than they are. The table below shows the size of the error.
| Annual rate | Correct monthly rate | Naive rate ÷ 12 | Annual rate the naive figure really implies | Overstatement |
|---|---|---|---|---|
| 3% | 0.2466% | 0.2500% | 3.04% | +0.04 pts |
| 5% | 0.4074% | 0.4167% | 5.12% | +0.12 pts |
| 8% | 0.6434% | 0.6667% | 8.30% | +0.30 pts |
| 10% | 0.7974% | 0.8333% | 10.47% | +0.47 pts |
| 12% | 0.9489% | 1.0000% | 12.68% | +0.68 pts |
| 15% | 1.1715% | 1.2500% | 16.08% | +1.08 pts |
| 18% | 1.3888% | 1.5000% | 19.56% | +1.56 pts |
| 20% | 1.5309% | 1.6667% | 21.94% | +1.94 pts |
| 25% | 1.8769% | 2.0833% | 28.07% | +3.07 pts |
| 30% | 2.2104% | 2.5000% | 34.49% | +4.49 pts |
| 40% | 2.8436% | 3.3333% | 48.18% | +8.18 pts |
| 50% | 3.4366% | 4.1667% | 63.21% | +13.21 pts |
Every input in the calculator, explained properly
Feasibility models fail at the input stage far more often than at the formula stage. The arithmetic is fixed and correct; the assumptions are yours. This section is about making the assumptions honest.
Initial investment
This is every cash outflow required before the project can begin operating, entered as a single one-time figure at month zero. The most common error is entering only the obvious purchase price. A realistic initial investment includes:
- Equipment, machinery, vehicles, furniture, and installation costs
- Fit-out, renovation, signage, and site preparation
- Security deposits and advance rent (these are cash out, even if refundable later)
- Licences, permits, registration, notary and legal fees
- Opening inventory and initial raw materials
- Software, hardware, website, and branding
- Staff recruitment and training before opening day
- Launch marketing spent before the first sale
- Working capital buffer — the cash you need to cover the gap between paying suppliers and being paid by customers
That last item is the one people forget, and it is the one that kills otherwise healthy businesses. If you pay suppliers in thirty days and customers pay you in sixty, you are permanently financing thirty days of sales out of your own pocket. Add it to the initial investment.
Monthly revenue
Enter the average monthly revenue you expect once the project is running normally. Two disciplines make this number trustworthy. First, build it from units: price × quantity, not a round number that "feels right." A café with 90 customers a day at an average ticket of 32 has revenue of about 86,400 a month, and now you can argue about whether 90 customers is realistic instead of arguing about a number nobody can defend. Second, remember that this model applies your revenue figure from month one. If your project has a genuine ramp-up — and almost all do — either enter a conservative blended average across the whole period, or model the ramp separately using the growth input described below.
Monthly operating costs
Every recurring cash outflow once the project is running. The list below is the one to check yourself against, because at least three of these are missing from most first drafts:
- Rent, service charges, utilities, internet
- Salaries and wages including employer contributions
- Your own salary — if you are working in the project, the market cost of your time is a real cost. A project that is only "profitable" because you work for free is not profitable.
- Cost of goods sold, raw materials, packaging
- Payment processing fees, platform commissions, delivery costs
- Software subscriptions, licences, hosting
- Marketing and customer acquisition on an ongoing basis
- Insurance, accounting, legal, bank charges
- Maintenance and replacement reserve — equipment wears out. Set aside a monthly figure even in the months when nothing breaks.
- Shrinkage, waste, refunds, bad debt
Project duration in months
The horizon over which you evaluate the project. Choose it deliberately, because it changes the answer more than any input except the discount rate.
| Type of project | Typical horizon | Why |
|---|---|---|
| Equipment or vehicle purchase | 36 – 84 months | Match the useful life of the asset |
| Retail or restaurant fit-out | 36 – 60 months | Usually the length of the lease term |
| Digital product or software | 24 – 48 months | Beyond that, technology and market shift too much to forecast |
| Rental property or long-lived infrastructure | 120 – 240 months | Asset life is genuinely long; use a terminal or salvage value |
| Marketing campaign or short contract | 6 – 24 months | The benefit window is short and identifiable |
The honest rule: stop at the point where your forecast becomes fiction. If you cannot defend month sixty, do not model month sixty. A shorter horizon with a salvage value is more credible than a long horizon full of invented numbers.
The annual discount rate — the input everyone guesses
This is the single most consequential number in the model and the one most people type without thinking. The discount rate is your required annual return: the minimum rate that makes committing this capital worthwhile rather than doing something else with it. It bundles three things together — the risk-free return you could get for doing nothing, the cost of your financing, and a premium for the specific risk of this project.
A workable way to build it:
- Start with the return on a safe local instrument — government bonds or a term deposit.
- Add your actual cost of borrowing if the project is debt-financed, weighted by how much is debt and how much is your own equity.
- Add a risk premium reflecting how uncertain this specific project is. A second branch of a proven shop is not the same as an untested product in a new market.
The following ranges are what practitioners typically use. They are guidance, not law — your local interest rates and risk appetite move them.
| Project profile | Typical annual discount rate | Reasoning |
|---|---|---|
| Cost-saving project with contractually certain savings | 4% – 7% | Little more than the cost of safe capital |
| Equipment replacement in an established business | 8% – 12% | Known operation, known demand |
| Expansion of a proven business model | 12% – 18% | Execution risk but validated demand |
| New business in a familiar sector | 18% – 25% | Demand is assumed rather than proven |
| New product in a new market | 25% – 40% | High failure rate justifies a high hurdle |
| Early-stage venture | 40% – 60%+ | Most attempts fail; survivors must pay for the failures |
If you take one thing from this section: a low discount rate is not optimism, it is a claim. You are claiming the project is safe. If it is not, the model will tell you a comforting lie with great precision.
The advanced inputs
Four optional inputs let the model breathe. Leave them empty and they default to zero, which gives you a flat baseline scenario.
Annual revenue growth (%). Applied geometrically from month one. Use it for ramp-up, seasonality-adjusted trend, or price increases. Be conservative: sustained growth above 10% a year for a small business is an achievement, not an assumption. It also accepts negative values, which is exactly how you model a declining asset or a product with a limited fashion window.
Annual cost growth (%). Costs almost never stay flat. Rent escalates, wages rise, suppliers reprice. Setting revenue growth at 8% while leaving cost growth at zero is the single most flattering error you can make in a feasibility model. If you do not know, set cost growth at your local inflation rate as a floor.
Tax rate on profit (%). Applied to positive monthly cash flow only. Loss-making months are not taxed, which mirrors reality in most systems for a standalone project. Enter your effective corporate or business income tax rate. Note that the model does not carry losses forward across months; if your project has substantial early losses that would offset later taxable profits, the model is slightly conservative, which is a good direction to err in.
Salvage value. A single cash inflow in the final month representing what the assets are worth when the project ends: resale value of equipment, the return of a deposit, the sale price of a property, or the value of the business as a going concern. It is discounted like any other cash flow, so a salvage value far in the future contributes much less than its face amount. Importantly, the calculator deliberately excludes salvage from both payback periods, because payback measures when your operations return your money, not when you sell the furniture.
The eleven outputs, and what each one is telling you
Net present value (NPV) — the primary decision rule
NPV is the sum of every discounted cash flow, minus the initial investment. It answers the only question that matters: after paying for the money you used, at the rate you required, how much value is left?
NPV = −C₀ + Σ [ CFₜ ÷ (1 + r)^t ] for t = 1 to n
A positive NPV means the project clears your hurdle rate and leaves that much surplus in today's money. A negative NPV does not necessarily mean the project loses money — it means it does not earn enough to justify the capital at your required return. This distinction is the most valuable thing a feasibility calculator teaches.
NPV is the primary rule because it is additive and unambiguous. Two projects with NPVs of 40,000 and 25,000 create 65,000 of value together. No other metric behaves this well.
Internal rate of return (IRR)
IRR is the discount rate at which NPV equals exactly zero — the project's own annualised rate of return, independent of what you require. Compare it directly to your discount rate: if IRR is comfortably above it, the project has room to absorb bad news.
There is no closed-form solution for IRR; it must be found numerically. The calculator solves for the monthly IRR using bisection, a method that repeatedly halves an interval known to contain the answer. It is slower than the Newton-Raphson method used by most spreadsheets but it cannot diverge or fail to converge, which is why spreadsheet IRR functions sometimes return an error on awkward cash flow patterns and this one does not. The monthly result is then annualised with (1 + monthly IRR)^12 − 1.
IRR has three known weaknesses you should keep in mind. It is blind to scale — a 200% return on 500 is worth less than a 30% return on 400,000. It implicitly assumes intermediate cash flows are reinvested at the IRR itself, which is optimistic for very high IRRs. And when cash flows change sign more than once, more than one mathematically valid IRR can exist. When IRR and NPV disagree about which project to choose, follow NPV.
Return on investment (ROI)
ROI = Net profit ÷ Initial investment × 100
Simple, nominal, and time-blind. A 92% ROI over two years and a 92% ROI over ten years are the same number and wildly different investments. Use ROI to communicate, never to decide. It is in the calculator because bankers, partners, and clients ask for it, and it is worth having the correct figure rather than a mental estimate.
Profitability index (PI)
PI = (NPV + Initial investment) ÷ Initial investment
Also called the benefit-cost ratio, PI expresses value created per unit of capital committed. A PI of 1.46 means every 1.00 invested returns 1.46 in present-value terms. PI above 1.0 is equivalent to a positive NPV, so it never contradicts NPV on a single project. Its real use is capital rationing: when you have five worthwhile projects and money for two, ranking by PI rather than by raw NPV gets you the most value out of your limited capital.
Simple payback period
Simple payback = the month when cumulative undiscounted operating cash flow first reaches the initial investment
The calculator interpolates within the month, so you get 12.5 months rather than a blunt "13." Payback is not a value measure — it ignores everything that happens after the payback point and ignores the time value of money entirely. What it does measure is exposure: how long your capital sits at risk. That makes it a genuine risk metric and the number your bank will look at first.
Discounted payback period
The same calculation using discounted cash flows. It is always longer than simple payback, and the gap between the two is a quiet indicator of how much the time value of money is eating into your project. A simple payback of 34.6 months against a discounted payback of 42.8 months tells you that at a 15% required return, more than eight months of your recovery is consumed by the cost of capital alone.
If the calculator reports that capital is not recovered within the horizon, that is not a rounding issue — it means the project never returns your money inside the period you modelled.
Net profit after tax, total revenue, total costs, total tax
These four are the nominal, undiscounted picture — the version that ties back to an income statement and the version your accountant will recognise. Net profit after tax is calculated as total revenue, minus total operating costs, minus the initial investment, minus tax paid, plus salvage value. Comparing net profit to NPV is instructive: the gap between them is the price of time and risk.
Minimum monthly revenue for NPV = 0
This is the output that does not appear in most feasibility tools, and it is the most operationally useful one. Instead of asking "is this project feasible?", it answers "what does this project have to achieve in order to be feasible?" The calculator solves the NPV equation backwards for revenue:
Break-even revenue = (Initial investment + PV of all operating costs − PV of salvage) ÷ Σ [ (1 + g)^(t−1) ÷ (1 + r)^t ]
The denominator is the present value of one unit of revenue received every month, adjusted for your revenue growth assumption. The result is a monthly sales target, expressed in currency, that you can hand to a manager. It is calculated before tax, so it is the revenue line, not the profit line.
The distance between this figure and your forecast revenue is your margin of safety, and it is the single best summary of how risky a project is. Ten percent of headroom means a mildly disappointing launch turns a good project into a bad one. Fifty percent means you can be badly wrong and still succeed.
Formula reference
| Metric | Formula as used by the calculator | Reading |
|---|---|---|
| Monthly discount rate | r = (1 + annual rate)^(1 ÷ 12) − 1 | Geometric, not annual ÷ 12 |
| Monthly growth rate | g = (1 + annual growth)^(1 ÷ 12) − 1 | Same conversion, applied to revenue and costs separately |
| Revenue in month t | Revenue × (1 + g_revenue)^(t − 1) | Month 1 equals your entered figure |
| Cost in month t | Cost × (1 + g_cost)^(t − 1) | Grows independently of revenue |
| Cash flow in month t | (Revenueₜ − Costₜ) × (1 − tax rate) if positive, otherwise Revenueₜ − Costₜ | Losses are not taxed |
| Discount factor for month t | 1 ÷ (1 + r)^t | What one unit in month t is worth today |
| Net present value | −C₀ + Σ [ CFₜ ÷ (1 + r)^t ], salvage added in month n | Positive means value created |
| Internal rate of return | The r where NPV = 0, solved by bisection, then (1 + r)^12 − 1 | Annualised project return |
| Return on investment | Net profit ÷ Initial investment × 100 | Nominal, ignores time |
| Profitability index | (NPV + C₀) ÷ C₀ | Value per unit of capital |
| Simple payback | t − (cumulative CF at t ÷ CF in month t), at first non-negative cumulative | Interpolated within the month |
| Discounted payback | Same, using CFₜ ÷ (1 + r)^t | Always longer than simple payback |
| Break-even monthly revenue | (C₀ + PV costs − PV salvage) ÷ Σ [ (1 + g)^(t−1) ÷ (1 + r)^t ] | Pre-tax monthly sales target |
| NPV shortcut, flat cash flow, no tax | −C₀ + CF × [1 − (1 + r)^−n] ÷ r + Salvage ÷ (1 + r)^n | Use with the annuity table below |
Quick-reference tables
These are the numbers behind the calculator, laid out so you can sanity-check a result on paper or do a rough calculation without opening anything.
Annual rate to monthly rate
Use for both the discount rate and the growth rates. All figures use the geometric conversion.
| Annual | Monthly | Annual | Monthly | Annual | Monthly |
|---|---|---|---|---|---|
| 2% | 0.1652% | 12% | 0.9489% | 30% | 2.2104% |
| 3% | 0.2466% | 14% | 1.0979% | 35% | 2.5361% |
| 4% | 0.3274% | 15% | 1.1715% | 40% | 2.8436% |
| 5% | 0.4074% | 16% | 1.2445% | 45% | 3.1359% |
| 6% | 0.4868% | 18% | 1.3888% | 50% | 3.4366% |
| 7% | 0.5654% | 20% | 1.5309% | 60% | 3.9944% |
| 8% | 0.6434% | 22% | 1.6709% | 75% | 4.7691% |
| 10% | 0.7974% | 25% | 1.8769% | 100% | 5.9463% |
Discount factors — what one unit received in month t is worth today
| Month | 5% a year | 8% a year | 10% a year | 12% a year | 15% a year | 20% a year |
|---|---|---|---|---|---|---|
| 6 | 0.9759 | 0.9623 | 0.9535 | 0.9449 | 0.9325 | 0.9129 |
| 12 | 0.9524 | 0.9259 | 0.9091 | 0.8929 | 0.8696 | 0.8333 |
| 18 | 0.9294 | 0.8910 | 0.8668 | 0.8437 | 0.8109 | 0.7607 |
| 24 | 0.9070 | 0.8573 | 0.8264 | 0.7972 | 0.7561 | 0.6944 |
| 36 | 0.8638 | 0.7938 | 0.7513 | 0.7118 | 0.6575 | 0.5787 |
| 48 | 0.8227 | 0.7350 | 0.6830 | 0.6355 | 0.5718 | 0.4823 |
| 60 | 0.7835 | 0.6806 | 0.6209 | 0.5674 | 0.4972 | 0.4019 |
| 84 | 0.7107 | 0.5835 | 0.5132 | 0.4523 | 0.3759 | 0.2791 |
| 120 | 0.6139 | 0.4632 | 0.3855 | 0.3220 | 0.2472 | 0.1615 |
Read the table as a warning about long horizons. At a 20% required return, everything you expect to earn in month 120 is worth about sixteen cents on the dollar today. This is why stretching a forecast to ten years rarely rescues a weak project — the far years barely count.
Annuity factors — what one unit per month for n months is worth today
This is the fastest sanity check that exists. Multiply your steady monthly net cash flow by the factor and compare against your initial investment. If the product is larger, NPV is positive.
| Months | 5% a year | 8% a year | 10% a year | 12% a year | 15% a year | 20% a year |
|---|---|---|---|---|---|---|
| 12 | 11.69 | 11.51 | 11.40 | 11.29 | 11.13 | 10.89 |
| 24 | 22.82 | 22.17 | 21.76 | 21.37 | 20.82 | 19.96 |
| 36 | 33.42 | 32.04 | 31.19 | 30.37 | 29.23 | 27.52 |
| 48 | 43.52 | 41.18 | 39.75 | 38.41 | 36.56 | 33.82 |
| 60 | 53.13 | 49.64 | 47.54 | 45.59 | 42.92 | 39.07 |
Worked example of the shortcut: an investment of 50,000 producing a flat 4,000 a month for 24 months at a 10% required return. The factor is 21.76, so the present value of the cash flows is 4,000 × 21.76 = 87,040, and NPV is roughly 87,040 − 50,000 = 37,040. The calculator returns 37,058 — the small difference is rounding in the table. The check takes ten seconds and catches order-of-magnitude errors immediately.
Growth rates and doubling time
| Annual growth | Monthly equivalent | Multiple after 3 years | Multiple after 5 years | Months to double |
|---|---|---|---|---|
| 3% | 0.2466% | 1.09× | 1.16× | 281 |
| 5% | 0.4074% | 1.16× | 1.28× | 171 |
| 8% | 0.6434% | 1.26× | 1.47× | 108 |
| 10% | 0.7974% | 1.33× | 1.61× | 87 |
| 15% | 1.1715% | 1.52× | 2.01× | 60 |
| 20% | 1.5309% | 1.73× | 2.49× | 46 |
| 30% | 2.2104% | 2.20× | 3.71× | 32 |
| 50% | 3.4366% | 3.38× | 7.59× | 21 |
Use this table to keep yourself honest. If you enter 30% annual revenue growth over five years, you are forecasting that your revenue will be 3.7 times its opening level. Ask whether your market, your premises, and your staffing plan actually support that.
Worked example one — a neighbourhood coffee shop
A small café in a residential district. The owner has quotes for the fit-out and equipment, a five-year lease, and a realistic sense of trading volumes from a nearby comparable business.
| Input | Value | Basis |
|---|---|---|
| Initial investment | 120,000 | Fit-out 62,000, equipment 34,000, deposit and licences 9,000, opening stock 5,000, working capital 10,000 |
| Monthly revenue | 22,000 | Roughly 95 customers a day at an average ticket of 7.7 |
| Monthly operating costs | 18,500 | Rent 4,200, staff 7,600, goods 4,400, utilities 900, other 1,400 |
| Duration | 60 months | Length of the lease |
| Discount rate | 15% | Expansion into a proven format, moderate risk |
| Revenue growth | 6% a year | Modest volume growth plus annual price adjustment |
| Cost growth | 4% a year | Wage and rent escalation |
| Tax on profit | 20% | Effective business tax rate |
| Salvage value | 15,000 | Resale value of equipment at the end of the lease |
The calculator returns:
| Output | Result | Interpretation |
|---|---|---|
| Net present value | 54,911 | Clears the 15% hurdle and creates about 55,000 of surplus value in today's money |
| Internal rate of return | 33.9% | More than double the required return — real headroom |
| Return on investment | 115.4% | Nominal, over the full five years |
| Profitability index | 1.46 | Each 1.00 committed returns 1.46 in present value |
| Simple payback | 34.6 months | Capital at risk for nearly three years |
| Discounted payback | 42.8 months | Eight extra months consumed by the cost of capital |
| Net profit after tax | 138,500 | Nominal, includes salvage, net of 60,875 in tax |
| Total revenue | 1,528,687 | Over 60 months with 6% annual growth |
| Total costs | 1,344,312 | Initial investment plus growing operating costs |
| Break-even monthly revenue | 20,020 | Below this, the project stops creating value |
The headline verdict is positive, but the last row is where the analysis actually happens. Forecast revenue is 22,000 and the break-even is 20,020 — a margin of safety of just 9%. If the café attracts 86 customers a day instead of 95, this stops being a value-creating project. Combine that with a payback period approaching three years and you have a project that is worth doing but leaves almost no room for error.
The same café under three scenarios
| Scenario | Assumption change | NPV | IRR | Payback |
|---|---|---|---|---|
| Pessimistic | Revenue 19,000, costs 19,000 | −81,112 | −14.4% | Never |
| Base | Revenue 22,000, costs 18,500 | 54,911 | 33.9% | 34.6 months |
| Optimistic | Revenue 25,000, costs 18,500 | 172,211 | 76.0% | 21.0 months |
Look at the swing. A 14% revenue shortfall from base does not reduce the NPV proportionally — it drives it 136,000 in the other direction and the capital is never recovered. This asymmetry is normal and it is why single-point forecasts are dangerous. The value of a project is far more sensitive to revenue than most people intuitively expect, because operating costs are largely fixed in the short run.
Worked example two — buying a delivery van
A small distribution business currently pays a third-party courier. Buying a van and hiring a driver would replace that spend. The "revenue" line here is the courier cost that stops being paid, plus incremental delivery income.
| Input | Value |
|---|---|
| Initial investment | 38,000 (van, insurance, livery, first service) |
| Monthly revenue equivalent | 6,200 (courier fees avoided plus new delivery income) |
| Monthly operating costs | 4,400 (driver, fuel, maintenance, insurance) |
| Duration | 60 months |
| Discount rate | 12% |
| Cost growth | 3% a year (fuel and wages) |
| Salvage value | 6,000 (resale after five years) |
| Output | Result |
|---|---|
| Net present value | 33,644 |
| Internal rate of return | 56.1% |
| Profitability index | 1.89 |
| Simple payback | 22.6 months |
| Discounted payback | 25.8 months |
| Net profit after tax | 55,844 |
| Break-even monthly revenue | 5,462 |
This is a much stronger proposition than the café despite a smaller absolute NPV, and the profitability index shows why: 1.89 against 1.46. Per unit of capital committed, the van creates far more value. The margin of safety is also wider — the break-even of 5,462 against 6,200 gives 12% of headroom on a cash flow that is largely contractual rather than speculative, because avoided courier costs are far more predictable than new café customers.
This example also illustrates a point worth internalising: cost savings are cash flows. A project does not need to generate new revenue to be worth modelling. Replacing a recurring expense with an owned asset is one of the most reliably positive-NPV moves a small business can make, and it is systematically under-analysed because it does not feel like an "investment."
Worked example three — a small software product
A developer builds a paid tool. Development is a one-time cost; hosting and support scale slowly while revenue compounds.
| Input | Value |
|---|---|
| Initial investment | 25,000 (development time valued at market rate, design, launch marketing) |
| Monthly revenue | 3,000 at launch |
| Monthly operating costs | 900 (hosting, support, tooling) |
| Duration | 36 months |
| Discount rate | 25% (new product, unproven demand) |
| Revenue growth | 35% a year |
| Cost growth | 12% a year |
| Tax on profit | 15% |
| Output | Result |
|---|---|
| Net present value | 52,899 |
| Internal rate of return | 193.7% |
| Profitability index | 3.12 |
| Simple payback | 11.8 months |
| Discounted payback | 13.2 months |
| Break-even monthly revenue | 1,318 |
The margin of safety here is enormous: break-even revenue is 1,318 against a forecast of 3,000, meaning the product could underperform by 56% and still create value. That is the structural advantage of high-gross-margin digital products, and it is why a 25% discount rate — punishing by any conventional standard — barely dents the result.
Two cautions, though. The 193.7% IRR is exactly the case where IRR's reinvestment assumption becomes fantasy; nobody redeploys monthly cash at 193% a year. Judge this project on its NPV and its margin of safety, not on its IRR. And the 35% growth assumption deserves scrutiny: over 36 months it implies revenue roughly 2.5 times the launch level. If that growth requires ongoing marketing spend, it belongs in the cost line rather than being free.
The trap: profitable on paper, value-destroying in reality
Consider a project requiring 200,000, generating 12,000 a month against 9,500 of costs, over 84 months, at a 14% required return.
| Metric | Result | What it appears to say |
|---|---|---|
| Total revenue | 1,008,000 | A million in sales |
| Total costs | 998,000 | Comfortably covered |
| Net profit | 10,000 | Profitable |
| Return on investment | 5.0% | Positive |
| Simple payback | 80 months | Slow, but it pays back |
| Net present value | −63,291 | Destroys 63,291 of value |
| Internal rate of return | 1.4% | Far below the 14% required |
| Discounted payback | Never | Capital is never recovered in real terms |
| Break-even revenue | 13,157 | The project needs 10% more revenue than forecast just to break even |
Every nominal metric says yes. Every time-adjusted metric says no. Seven years of work, a million in turnover, and the owner ends up 63,291 worse off than if the capital had simply earned 14% elsewhere — and that is before counting the years of their life. This single comparison is the strongest argument for running a discounted cash flow analysis rather than a profit calculation, and it is precisely the scenario a simple "revenue minus cost" spreadsheet cannot detect.
How to read the cumulative cash flow chart
The calculator plots two curves. The solid line is cumulative nominal cash flow; the dashed line is cumulative discounted cash flow. Both start at month zero at the negative of your initial investment. A vertical marker shows the discounted payback point.
- The depth of the trough is your maximum cash exposure. This is the amount of financing you must actually have available, and it is the number a lender cares about most.
- Where each curve crosses zero is the respective payback point. The horizontal gap between the two crossings is the cost of capital expressed in time.
- The final height of the dashed line is your NPV. If it ends below zero, so does your project.
- The slope tells you about momentum. A curve that flattens near the end signals that growth in costs is catching up with growth in revenue — often a sign that your horizon is too long or your cost growth assumption is too low.
- A widening gap between the two lines means late cash flows dominate the project. Late-loaded projects are structurally riskier because more of their value depends on forecasts further into the future.
Decision rules you can actually use
| Signal | Reading | Suggested action |
|---|---|---|
| NPV clearly positive, IRR well above discount rate, margin of safety above 25% | Robust | Proceed; focus energy on execution |
| NPV positive but margin of safety under 15% | Fragile | Proceed only with a specific plan to widen the margin — cut fixed costs, raise price, or reduce the initial investment |
| NPV near zero | Indifferent | The project earns exactly your required return and no more. Only do it for strategic reasons you can name |
| NPV negative but IRR positive and close to the discount rate | Marginal | Do not proceed as designed. Re-scope: smaller investment, shorter horizon, higher price |
| NPV negative and IRR far below the discount rate | Reject | No amount of optimisation saves this structure |
| Discounted payback exceeds two thirds of the horizon | Late-loaded | Treat with suspicion; most of the value rests on the least reliable years |
| Capital not recovered within the horizon | Reject or extend | Either the project is unviable or you have modelled too short a life for a long-lived asset |
| Profitability index below 1.0 | Reject | Equivalent to negative NPV; capital is better used elsewhere |
Stress testing: the three-scenario method
A single set of inputs produces a single answer and a false sense of certainty. The professional habit is to run at least three, and the calculator makes this fast — change one field and the results update as you type.
- Pessimistic. Revenue 20–30% below your base case, operating costs 10–15% above, and a longer ramp. This is not a doomsday scenario; it is what a mildly disappointing reality looks like, and it happens more often than the base case does.
- Base. Your genuine best estimate, built from units and quotes rather than round numbers.
- Optimistic. Revenue 15–25% above base. Use this to understand the upside, never to justify the decision.
The decision rule that follows is simple and disciplined: a project is worth doing if the base case is comfortably positive and the pessimistic case is survivable. If the pessimistic case wipes you out, the project is a bet, not an investment — regardless of how good the base case looks.
Beyond the three scenarios, test one variable at a time to find your fragility. Reduce revenue by 5% and see how much NPV moves. Then do the same for costs, for the discount rate, and for duration. Whichever input moves NPV the most is the one that deserves your attention, your research budget, and your contingency planning. In most small projects it is revenue, followed by fixed operating costs.
Turning break-even revenue into a management target
The minimum monthly revenue figure is where a feasibility study stops being a document and becomes an operating tool. Once you know that the café needs 20,020 a month to justify its capital, you can decompose it:
- 20,020 a month ÷ 30 days = 667 a day
- 667 a day ÷ an average ticket of 7.7 = 87 customers a day
- 87 customers ÷ 12 trading hours = 7.3 customers an hour
That last number is something a manager can watch in real time. It converts an abstract financial hurdle into a floor-level operating metric, and it gives you an early warning system: if you are running at five customers an hour in month three, you do not need to wait for the annual accounts to know you have a problem. Do the same decomposition for your own project — into units sold, billable hours, occupancy rate, or deliveries per day — and pin the result somewhere visible.
Twelve mistakes that quietly ruin feasibility studies
- Omitting the owner's salary. If you work forty hours a week in the project, the market cost of that time is a real operating cost. Excluding it converts a job into a fake investment return.
- Growing revenue but not costs. The most flattering single error available. Rent, wages, and inputs all escalate. If you set revenue growth above zero, set cost growth above zero too.
- Choosing the discount rate to get the answer you want. If you find yourself lowering the rate until NPV turns positive, stop. You are no longer analysing.
- Ignoring working capital. The gap between paying suppliers and being paid is real cash that must be financed from day one.
- Assuming full revenue from month one. Almost nothing reaches steady state immediately. Either lower the month-one figure and use growth to ramp up, or lower the average.
- Forgetting maintenance and replacement. Equipment fails on its own schedule, not yours. Budget a monthly reserve.
- Modelling too long a horizon. A ten-year forecast for a fashion-driven retail concept is creative writing. Shorten the horizon and use a salvage value instead.
- Treating sunk costs as investment. Money already spent on research or a deposit you cannot recover is irrelevant to whether you should proceed. Only future cash flows matter.
- Comparing projects on IRR alone. IRR ignores scale. A tiny project with a spectacular IRR can be worth less than a large project with a modest one.
- Confusing profit with cash. Profit is an accounting opinion; cash is a fact. Feasibility analysis runs on cash, which is why this model uses cash flows throughout.
- Ignoring the margin of safety. A positive NPV with 4% of headroom is not a green light, it is a warning.
- Not writing down the assumptions. Six months later you will not remember why you assumed 95 customers a day. Record the basis for every input alongside the result.
Notes by sector
| Sector | What to watch in the model |
|---|---|
| Food service and retail | Fit-out is largely unrecoverable, so keep salvage value low. Match the horizon to the lease. Seasonality means a monthly average understates working capital needs — model the worst month separately. |
| E-commerce | Inventory is working capital, not a cost, until it sells. Include returns, platform commissions, and payment fees in operating costs. Customer acquisition cost usually rises over time, so set a positive cost growth rate. |
| Software and digital products | Development time is the investment even when no money changes hands. Churn is negative revenue growth — if you lose 3% of customers a month, your growth assumption must net that out. |
| Equipment and vehicles | Horizon should match useful life. Salvage value is genuine and researchable from resale markets. Rising maintenance costs late in life justify a meaningful cost growth rate. |
| Rental property | Long horizons and a large terminal value dominate. Model vacancy as a reduction in revenue, not an afterthought. Property taxes, service charges, and periodic refurbishment all belong in operating costs. |
| Services and consulting | Low initial investment usually produces spectacular ratios — check that the "investment" is real. The binding constraint is billable hours, so express break-even revenue in hours and test whether it fits in a week. |
| Manufacturing and workshops | Capacity is a hard ceiling. If break-even revenue implies output above your machine's capacity, the project is infeasible regardless of what the NPV says. |
What this calculator does not do
An honest tool states its boundaries. This model deliberately trades completeness for clarity, and the following are outside its scope:
- Irregular cash flows. It models a smooth monthly pattern with optional compound growth. Lumpy flows — a machine overhaul in month 30, a large seasonal spike — are not represented directly. Approximate them by adjusting your averages, or model distinct phases as separate runs.
- Loan schedules and financing structure. The model evaluates the project, not how it is funded. If you want the equity-holder view, either reduce the initial investment to your own contribution and add the loan instalment to monthly costs, or keep the project view and treat the discount rate as your blended cost of capital. Do not do both at once.
- Depreciation and tax shields. Tax is applied to cash profit, not to accounting profit after depreciation. In jurisdictions with generous capital allowances this makes the model conservative.
- Loss carry-forward. Losses in one month do not reduce tax in later months. Again, conservative.
- Inflation as a separate variable. Work consistently in nominal terms — nominal cash flows with a nominal discount rate — using the growth inputs to carry inflation. Mixing real cash flows with a nominal rate is a classic error.
- Currency risk. The calculator formats over 155 world currencies, but it does not model exchange-rate movement between them. If your costs and revenues are in different currencies, model that risk separately.
- Probability and simulation. There is no Monte Carlo layer. The three-scenario method described above is the practical substitute and is enough for the overwhelming majority of small and medium projects.
Presenting your numbers to a bank or an investor
Lenders and investors read feasibility studies in a predictable order, and knowing that order helps you present well.
- How much do you need, and what exactly for? An itemised initial investment, not a round number.
- When do they get their money back? Simple payback first, then discounted payback. Lenders think in exposure.
- What happens if you are wrong? Your pessimistic scenario, presented voluntarily. Showing a downside case you have already thought about builds more credibility than any optimistic projection.
- What is the return? NPV and IRR, with the discount rate stated and justified. An unexplained discount rate is the fastest way to lose a reader's trust.
- How much room for error is there? Break-even revenue against forecast revenue, expressed as a percentage margin of safety.
- What secures the downside? Salvage value, resale markets, personal guarantees, or contracted revenue.
Practical advice: present one page of results, one page of assumptions with sources, and one page of scenarios. The share-link feature of this calculator is useful here — it encodes your full scenario in the page address, so a colleague, accountant, or lender can open the exact same model and change a single assumption to test it themselves. Nothing builds confidence in a set of numbers faster than letting someone else prod them.
Frequently asked questions
What is the difference between NPV and ROI?
ROI compares total profit to the amount invested and ignores when the money arrives. NPV discounts every cash flow by the time it takes to arrive and by the return you require. A project can have a high ROI and a negative NPV if the profit takes long enough to materialise, as the fourth worked example above demonstrates.
What discount rate should I use if I am not sure?
Use the return you could reliably earn on your next best alternative, plus a premium for how uncertain this project is. If you genuinely have no basis, run the model at three rates — say 10%, 15% and 20% — and see whether the conclusion changes. If the project is positive at all three, the rate is not your problem. If it flips, you have just learned that this decision hinges entirely on an assumption you cannot defend, which is itself extremely valuable information.
Why is my IRR shown as not available?
IRR requires at least one negative and one positive cash flow. If your project never produces a positive month — costs exceed revenue throughout — no rate of return exists and the field shows as unavailable. This is mathematically correct, not an error.
Why is discounted payback longer than simple payback?
Because discounted cash flows are smaller than nominal ones, so it takes more months for them to accumulate to the initial investment. The two are equal only when the discount rate is zero.
Should salvage value count towards payback?
No, and this calculator deliberately excludes it. Payback measures how long operations take to return your capital. Including a lump sum from selling the assets at the end would make a project appear to pay back at the exact moment you shut it down, which tells you nothing useful about risk.
How do I model a loan?
Two valid approaches, and you must pick one. Project view: enter the full investment, ignore the loan, and use a discount rate that reflects your blended cost of capital. Equity view: enter only your own cash contribution as the initial investment, add the monthly loan instalment to operating costs, and use a discount rate reflecting the higher risk of a leveraged position. Mixing the two double-counts the financing cost.
How do I handle a project with no revenue, only cost savings?
Enter the savings in the monthly revenue field. A saved cost is economically identical to earned revenue. This is exactly how the delivery van example works.
What if my revenue is highly seasonal?
Use the annual average as your monthly revenue for the feasibility verdict — over a multi-year horizon the seasonality largely averages out in NPV terms. But do not use the average for cash planning. Model your worst quarter separately to size the working capital buffer you need to survive it.
Is a shorter payback always better?
For risk, yes. For value, not necessarily. A project paying back in eight months and then stopping creates less value than one paying back in thirty months and then running profitably for five years. Use payback to judge exposure and NPV to judge value, and never let payback alone make the decision.
Can I compare two completely different projects with this?
Yes, with one discipline: use the same discount rate for projects of similar risk, and adjust the rate upward for the riskier one. Compare on NPV if capital is not constrained, and on profitability index if it is.
What does a negative NPV really mean?
It means the project does not earn your required return. It does not necessarily mean you lose money. A project with a −5,000 NPV at a 20% discount rate might be perfectly profitable in cash terms but is simply not worth 20%-cost capital. Lower your required return to what is truly justified, and if it turns positive, the project was fine and your hurdle was wrong.
How accurate are these calculations?
The arithmetic is exact — every month is computed individually in double precision, and IRR is solved by bisection to a tolerance far finer than any input you will provide. The accuracy of the answer is entirely determined by the accuracy of your assumptions. A model is a mirror; it reflects the quality of what you put in front of it.
Does the calculator store or send my figures anywhere?
No. Every calculation runs entirely in your browser. Nothing is transmitted. The only thing stored locally is your language and currency preference, so the tool opens the way you left it.
Can I share a scenario with someone else?
Yes. The share button copies a link that encodes all of your inputs, plus your chosen language and currency. Anyone who opens it sees the identical model already calculated, and can change one number to test their own assumption.
Glossary
| Term | Meaning |
|---|---|
| Capital budgeting | The discipline of deciding which long-term investments an organisation should make |
| Cash flow | Actual money moving in or out, as distinct from accounting profit |
| Cost of capital | The blended return demanded by everyone financing the project, debt and equity together |
| Discount rate | The annual rate used to convert future cash into present value; your required return |
| Discount factor | 1 ÷ (1 + r)^t — the multiplier that converts a future amount into today's money |
| Discounted cash flow (DCF) | The family of methods that value a project by discounting its future cash flows |
| Hurdle rate | The minimum acceptable return; in this model, the discount rate you enter |
| Internal rate of return (IRR) | The discount rate at which NPV equals zero |
| Margin of safety | The percentage by which forecast revenue exceeds break-even revenue |
| Net present value (NPV) | Present value of all cash inflows minus all outflows, including the initial investment |
| Opportunity cost | The return you give up by choosing this project over the next best alternative |
| Payback period | Time until cumulative cash flow recovers the initial investment |
| Profitability index (PI) | Present value of benefits divided by initial investment; value per unit of capital |
| Salvage value | Cash realised from assets at the end of the project's life |
| Sensitivity analysis | Changing one assumption at a time to see how much the result moves |
| Sunk cost | Money already spent and unrecoverable; irrelevant to future decisions |
| Terminal value | The value attributed to everything beyond the modelled horizon |
| Time value of money | The principle that money available now is worth more than the same amount later |
| Working capital | Cash tied up in inventory and receivables while you wait to be paid |
A final word
The value of a feasibility calculator is not that it produces a number. It is that it forces you to state your assumptions clearly enough that they can be tested. Most bad investments are not the result of bad arithmetic; they are the result of assumptions that were never written down, never questioned, and never stress-tested against a mildly disappointing reality.
Use the calculator above three times: once for what you hope, once for what you expect, and once for what you fear. Look at the break-even revenue figure before you look at the verdict. Write down where every input came from. If the pessimistic case is survivable and the base case is comfortably positive, you have something worth building. If not, you have just saved yourself the most expensive lesson in business — and that is a return on investment no spreadsheet can measure.