# 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. Contents