Financial
Net Present Value
Calculate the Net Present Value (NPV) of a series of future cash flows discounted at a given rate. NPV helps determine if an investment will be profitable.
Excel Formula
=NPV(A1, B2:B7) + B1Step-by-Step Explanation
1
NPV calculates present value of future cash flows
2
A1 is the discount rate (e.g., 10%)
3
B2:B7 contains future cash flows
4
B1 is the initial investment (negative number)
5
Adding B1 accounts for the upfront cost
6
Positive NPV means the investment adds value
Example
| Year | Cash Flow (B) | Discount Rate: 10% |
|---|---|---|
| 0 (Initial) | -$50,000 | |
| 1 | $15,000 | |
| 2 | $18,000 | |
| 3 | $22,000 | |
| 4 | $25,000 |
Result: Formula: =NPV(10%,B3:B6)+B2 → $12,835.47
Common Variations
XNPV for irregular dates
=XNPV(A1,B2:B7,C2:C7)When cash flows aren't evenly spaced
Without NPV function
=B2/(1+A1)^1+B3/(1+A1)^2+B4/(1+A1)^3Manual calculation
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