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Does the project pay off? Feasibility analysis

Build the annual cash flow with revenue, costs, taxes, working capital, depreciation and a loan. See NPV, IRR, MIRR, payback, profitability index and debt coverage, for the project and for the owners, plus sensitivity analysis, margin of safety and a Monte Carlo simulation.

Educational simulation. Not investment advice. Results are estimates based on the data you enter and do not replace advice from a qualified professional.

Reviewed on Oct 31, 2026

Example values: a small manufacturer. Nominal values (with inflation built into prices and costs).

Timeline

The investment is split equally over the construction years (from year 0). Operations start the following year.

Investment

Non-depreciable part: land, for example. Sustaining capex per year as % of the initial investment. Residual value as % of the initial investment, in the last year. Working capital as % of gross revenue. Depreciation is straight-line.

Revenue

Ramp-up: share of the volume reached in the first operating years. From year 3 on, 100%.

Costs and expenses
Taxes

Only taxes the business pays on its sales, net of credits. Sales tax collected from customers on top of the price is not a cost: leave 0%.

Combined income tax rate on the project’s taxable profit, after depreciation and loan interest. Tax losses from early years offset later profits up to the limit.

Discount rate

Minimum acceptable return used to discount the cash flows (the opportunity cost of capital).

Financing
Repayment method

Loan proceeds follow the investment. The grace period counts from year 0.

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—Project NPV
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Project and equity indicators

Project: the whole investment, without the loan. Equity: only the owners’ money, with loan proceeds coming in and interest and principal going out.

Cash flow and payback

Bars: each year’s cash flow. Lines: cumulative balance, nominal and discounted at the hurdle rate. Payback happens where the line crosses zero.

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Results over time

Net revenue, EBITDA and net income per year, with the EBITDA margin on the right axis.

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Where the revenue goes

Sum of all operating years, from gross revenue down to net income.

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Loan: debt service and coverage

Interest and principal paid per year, outstanding balance and the debt service coverage ratio (DSCR) on the right axis.

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NPV profile

NPV at each discount rate. Where the curve crosses zero is the IRR.

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What moves NPV the most

Each variable changed on its own, down and up. The biggest bars are the biggest risks of the project.

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Sensitivity curves

NPV when each variable changes on its own, from −30% to +30%. The steeper the line, the more the project depends on it.

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Margin of safety

How much each variable can worsen, on its own, until the project NPV reaches zero.

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Sensitivity over time

Discounted cumulative cash flow year by year with the chosen variable below and above its current value. Where each line crosses zero is that scenario’s discounted payback.

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Two-way sensitivity

Two variables at the same time, with your simulation at the center.

destroys valuecreates value

Monte Carlo simulation

Price, volume, variable cost, fixed costs and investment drawn at the same time, each within the chosen uncertainty. The chart shows how many simulations fell in each NPV range.

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Monte Carlo over time

Discounted cumulative cash flow of all simulations. The light band holds 80% of the scenarios (10th to 90th percentile) and the dark band the middle 50%.

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Annual cash flow (income statement and cash flows)

Rounded values. Outflows are negative. Each subtotal is the sum of the lines above it in the block.

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The summary lists your inputs, results, formulas, assumptions and sources. The full report also includes the charts and interpretations, in color. In the print dialog, choose Save as PDF.

Method, assumptions and sources

Formulas

EBITDA = gross revenue − taxes on revenue − variable costs − fixed costs − SG&A; EBIT = EBITDA − straight-line depreciation
Project cash flow = EBIT − income tax on EBIT + depreciation − investments ± working capital + residual value net of tax
Equity cash flow = net income + depreciation − investments ± working capital + net residual value + loan proceeds − principal repayments
NPV = Σ flow_t ÷ (1 + hurdle rate)^t; IRR: rate that makes NPV zero; MIRR = (FV of inflows at the hurdle rate ÷ PV of outflows at the hurdle rate)^(1/T) − 1
DSCR = (EBITDA − income tax) ÷ (interest + principal of the year); equivalent annual value = NPV × rate ÷ (1 − (1 + rate)^−T)
Monte Carlo: price, volume, variable cost, fixed costs and investment drawn from independent triangular distributions of ± the uncertainty, fixed seed

Assumptions and limits

  • Educational analysis in nominal values, with cash flows at the end of each year. Taxes on revenue as a single effective rate; income tax as a single rate on taxable profit, with loss carryforward up to the limit entered; loan interest is deductible; the gain on the residual value is taxed at the same rate. Interest capitalized during the grace period is not deducted.
  • Straight-line depreciation over the useful life entered; the investment is split equally over the construction years and operations start the following year. Working capital follows gross revenue and is recovered in the last year.
  • It does not replace a professional feasibility study, tax planning or the opinion of a qualified professional. Tax rates are editable references.

Official sources and references

  • Damodaran, A. Damodaran Online (cost of capital and capital budgeting, NYU Stern).
  • IRS. Publication 542, Corporations (corporate tax rate and net operating losses, U.S.).
  • Brealey, R.; Myers, S.; Allen, F. Principles of Corporate Finance. McGraw-Hill.

Frequently asked questions

What is NPV and when should I use it?

Net present value is the sum of a project’s cash flows brought to today at your hurdle rate, minus the investment. Use it to decide whether an investment (a machine, a new location, a product line) is worth more than its cost. Above zero, the project creates value.

What is IRR, and how is MIRR different?

IRR is the annual return that makes NPV zero; the project is attractive when IRR beats the hurdle rate. MIRR assumes surplus cash is reinvested at the hurdle rate rather than at the IRR itself, so it is usually lower and more realistic.

How do I read the default example?

In the example, a small manufacturer invests $450,000 and sells 50,000 units a year at $12. At a 10% hurdle rate, the project NPV is $565,722 and the IRR 27.4%, so it creates value; the discounted payback is 5.0 years. With 60% of the investment financed at 8% a year, the equity NPV rises to $614,201 (IRR of 45.6%). The price can fall 18.1% before the project NPV reaches zero.

Where do I get the numbers?

Price, volume and costs come from your business plan, supplier quotes and market research; the investment from construction and equipment quotes. The hurdle rate is the return you would require from another use of the money with similar risk. Confirm tax rates with your accountant.

What is the difference between project and equity cash flow?

Project cash flow treats the investment as if it were paid entirely with the owners’ money. Equity cash flow adds the loan proceeds and subtracts interest and principal. A loan cheaper than the hurdle rate raises the equity return, but also the risk.

What are common mistakes?

Forgetting working capital, using an optimistic residual value, ignoring the ramp-up of the first years and using a hurdle rate that is too low. Also remember that the Monte Carlo simulation draws each variable independently; in real life price and volume often worsen together.

When should I talk to a professional?

For large projects, bank financing or projects that depend on tax incentives. A professional study reviews market assumptions, actual taxation and the lender’s requirements, which this simulation simplifies.

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How to assess a project: NPV, IRR and payback

Before investing in a new machine, location or product line, it is worth answering one question: will the cash the project generates pay back the investment and still reward the capital adequately? A feasibility analysis answers it with a few indicators calculated on the project’s annual cash flow.

The main indicators

IndicatorWhat it showsFeasible when
NPV (net present value)how much value the project creates, in today’s money, above the required returngreater than zero
IRR (internal rate of return)the project’s annual returngreater than the hurdle rate
MIRR (modified IRR)the IRR assuming cash is reinvested at a realistic rategreater than the hurdle rate
Paybackhow many years until the investment comes backshorter than the acceptable period
Profitability indexpresent value of inflows ÷ investmentgreater than 1

Example

An investment of $100,000 that generates $30,000 a year for 5 years, with a 12% hurdle rate, has an NPV of about $8,143 and an IRR of 15.2%. It is feasible: it earns more than the required 12%.

Project and equity

The project view looks at the whole investment, without the loan. The equity view looks only at the owners’ money, with the loan proceeds coming in and interest and principal going out. A cheap loan can raise the equity IRR considerably. The calculator also shows debt coverage (DSCR): whether each year’s cash is enough to make the loan payments.

What must not be left out

Taxes on revenue and on profit, the extra working capital (inventory and customer credit of the new business), depreciation and the residual value of the equipment at the end of the period. Forgetting working capital is one of the most common mistakes and usually makes the project look better than it is. For large decisions, have the study reviewed by a professional.