Evaluating Projects With NPV
Discount future cash flows to a net present value.
The Question NPV Answers
Businesses constantly ask: is this project worth doing? An investment costs money up front but pays back over years. NPV (Net Present Value) helps decide.
NPV discounts every future cash flow back to today's value and adds them up. If the total is positive, the project earns more than your required return; if negative, it falls short.
It is the cornerstone of capital budgeting.
The NPV Syntax
The function is =NPV(rate, value1, [value2], ...).
- rate — the discount rate per period (your required return or cost of capital).
- value1, value2, ... — the future cash flows, one per period.
You can also pass a single range, like =NPV(rate, B2:B6), which is far more common in practice.
=NPV(rate, B2:B6)All lessons in this course
- Loan Payments With PMT
- Present and Future Value With PV and FV
- Evaluating Projects With NPV
- Return Rates With IRR