How to Calculate Net Present Value (NPV) in Excel

Net Present Value (NPV) is a useful investment analysis technique which helps the management greatly in making informed decisions. Manual  exercise of calculating NPV takes a time but thanks to Microsoft Excel that it can be done within a minutes. 

Things to require

In order to calculate NPV using Excel formula is easy. For this, we need things as follows:

  1. discount rate
  2. cash flows year 1
  3. cash flow year 2
  4. cash flow year 3 and so on
  5. initial investment amount

Formula

= NPV(discount rate, cash flow year 1, cash flow year 2, cash flow year 3, ...) + initial investment

Example

ABC CFO is evaluating the project with the following cash flows:

 

Year

0

1

2

3

4

5

             

 Cash Flows

(10,000)

2,500

2,000

3,000

5,000

4,500

             

 Discount rate

10%

         
             

 NPV

2,389

         

 

We have used the following formula to calculate the NPV:

=NPV(C7,D5,E5,F5,G5,H5)+C5

C7 contains discount rate, while cell D5 to H5 contain annual cash flows. C5 contains initial investment at the time of starting the project.

 

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