Advanced Excel Financial - NPV Function

Description

The NPV function calculates the net present value of an investment by using a discount rate and a series of future payments (negative values) and income (positive values).

Syntax

NPV (rate,value1,[value2],...)

Arguments

Notes

• If n is the number of cash flows in the list of values, the formula for NPV is −

  $$NPV = \sum_{i = 1}^{n}\frac{values_i}{\left ( 1+rate \right )^i}$$

• Value1, value2 ... must be equally spaced in time and occur at the end of each period.

• NPV uses the order of value1, value2 ... to interpret the order of cash flows.

• Be sure to enter your payment and income values in the correct sequence.

• The NPV investment begins one period before the date of the value1 cash flow and ends with the last cash flow in the list. The NPV calculation is based on future cash flows. If your first cash flow occurs at the beginning of the first period, the first value must be added to the NPV result, not included in the values arguments.

• Arguments that are empty cells, logical values, or text representations of numbers, error values, or text that cannot be translated into numbers are ignored.

• If an argument is an array or reference, only numbers in that array or reference are counted. Empty cells, logical values, text, or error values in the array or reference are ignored.

• NPV is similar to the PV function (present value). The primary difference between PV and NPV is that PV allows cash flows to begin either at the end or at the beginning of the period. Unlike the variable NPV cash flow values, PV cash flows must be constant throughout the investment.

• NPV is also related to the IRR function (internal rate of return). IRR is the rate for which NPV equals zero −

  $$NPV\left ( IRR\left ( ... \right ) ...\right ) = 0$$

Applicability

Excel 2007, Excel 2010, Excel 2013, Excel 2016

Example