Excel like a finance pro.
Financial function
NPV
Returns the net present value of cash flows that occur at the end of each period.
When to use it
The present value of a series of cash flows at a discount rate, assuming the first flow is one period away. Subtract the initial investment separately, since it happens today.
The shape of it
- Syntax
=NPV(rate, value1, [value2], ...)
- Example
=NPV(10%,B2:B6)+B1
Worked examples
Project appraisal
=NPV(0.1,300,400,500)-1000 → -21.04
Three years of inflows against a 1,000 outlay today: not worth it at 10%.
From a range
=NPV(0.1,B2:B4) → 978.96
The same inflows from a range, before the outlay.
Equal flows
=NPV(0.08,{5000,5000,5000}) → 12,885.48
Three equal payments; PV would give the same.
Worth knowing
- It treats the first value as one period out. Add the initial investment outside the function.
- The initial outlay at time zero must not be inside NPV; add it outside.
- Blank cells in the range are skipped, which shifts later periods earlier.
- XNPV for flows on specific dates.
Where it goes wrong
- Including the time-zero flow inside NPV discounts it one period too many.
- Text in the range is ignored silently.
Related
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