Evaluate an investment with changing annual cash flows

Averaging unequal flows removes important information. Earlier receipts are available sooner, while a later payment may undo apparent payback. Record each year separately, using positive receipts and negative payments, and preserve the schedule even when the total stays unchanged.

Hypothetical example, in EUR

With EUR 1,000 invested, flows of 200 and 1,000 total the same as 600 and 600. At 5%, their NPVs are about EUR 97.51 and 115.65. Later receipts reduce discounted value. The pattern −100, +230, −132 also has IRRs of 10% and 20%; picking one hides ambiguity. Compare NPVs at your selected rates instead.

−1 000 + 200 / 1.05 + 1 000 / 1.05² ≈ 97.51 EUR

What to check before deciding

Define monthly or annual flows and use a matching period discount rate. Do not replace available cash with accounting profit. Residual value is included once at the end. Repeated sign changes can create multiple IRRs; do not pick one to make the result attractive. Rates and flows are assumptions, not recommendations or guarantees.

What can change the result?

Timing, rate and signs of cash flows. Later payments can reverse early payback; the accumulated total alone does not assess risk.

Try the example and compare your own inputs

Reading the result

Positive NPV means the modelled flows exceed the selected discount rate. ROI ignores timing, while IRR may not be unique. Use the same time unit for the rate and cash flows.