How To: Net Present Value (NPV)

Money later is worth less than money now. NPV adds up future cash flows after discounting them by a rate (the return you could earn elsewhere). A positive NPV means the project beats that rate.

Excel's NPV(rate, flows) treats the first flow as one period away, so the initial investment (paid now, at time zero) is added separately: =NPV(rate, future flows) + initial where the initial is negative.

Exampleexcel

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Quick check

A positive NPV means the project...

Returns more than the discount rateLoses moneyCosts nothing

Your turn: write the code

Find the NPV at 8% of flows 500, 600 and 700 (B2:B4) after paying 1500 now (B1, entered as -1500). Put it in B6 rounded to 2 decimals.

Finish the quick check (and any code exercise) to complete this lesson, or mark it done yourself.

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