NPV function

FUNCTIONS
Depreciation
Payment Streams, Annuities, Loans
Securities
Coupons
Miscellaneous

NPV

Returns the net present value of an investment with regular cash payments.

Syntax:

NPV(discountrate; payment1; payment2; ... payment30)

payment1 to payment30 are up to 30 numbers or ranges containing numbers, representing payments made at the end of each of a series of fixed length periods. The payments may be both positive and negative, for income and outgoing.
discountrate is the discount rate (expressed as a fraction of 1) which you consider applies to one single period. It is assumed to be constant for all periods.
NPV calculates the net present value using the formula:

Example:

NPV(8.75%; 1000; 2000; 3000)

where the discount rate 8.75% is the assumed competitive return over one year, and 1000 is to be paid at the end of year 1, 2000 at the end of year 2 and 3000 at the end of year 3, returns 4943.21 as currency.

NPV(0.0875; A1:A3)

where cells A1:A3 contain 1000, 2000 and 3000, returns 4943.21 similarly.

Issues:

• The discount rate chosen is assumed to compound each period. If the period is say one month, and you wish to calculate using a competitive return known over one year, you might choose a discount rate of a twelfth of the competitive return - but be aware that this is not absolutely accurate. There is no simple formula.