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NPV, NPV, or net present value is a key indicator in assessing the profitability of investment projects. It allows you to find out in advance whether it is worth investing and which investment option to choose. If the indicator is above 0, then the investment will bring profit. For calculation, it is most convenient to use the NPV function of the Excel spreadsheet editor.

In order to assess the profitability of investing in a project, it is important to assess in advance whether such investments will bring profit. For these purposes, in the world practice of investment analysis, the net present value, or NPV, indicator is used.

NPV (Net Present Value) is the sum of the discounted values ​​of the payment stream, reduced to the current date. Reference!

The NPV indicator shows the amount of money that an investor can receive from an investment. It is not just the difference between costs and revenue that is determined: the calculation takes into account risks and changes in the value of money over time. Therefore, net present value is the profit on the project, recalculated taking into account the real price of money on the date of calculation.

In the literature, NPV is often called net present value, net discounted flow, net present value (abbreviated as NPV).

• There are three cases of using the indicator in investment analysis:
• when assessing the viability of the project and the possibility of investing funds in it;
• when choosing the most profitable source of investment from several options;

when calculating the internal rate of return IRR. Important point!

NPV can be calculated as part of the investment analysis of large and small projects. It is equally applicable to the assessment of financial and real investments.

NPV calculation formula

The essence of calculating net present value looks simple on the surface: it is enough to subtract all outflows within each time period from all cash inflows, and then bring the resulting values ​​to the time of calculation.

However, this process can only be carried out using the formula:

Based on the formula:

CF - total cash flow for period t;

t - serial number of the period;

i - cash flow discount rate (reduction rate);

when calculating the internal rate of return IRR. If investments are poured into a project several times during its implementation, then they are included in the cash inflows of the corresponding time period.

Values ​​of the NPV coefficient in investment analysis

The result obtained from the calculation of net present value indicates how promising and profitable investments in the investment project are.

A positive NPV value when financing using equity means that investing money in a project is more profitable than the alternative of investing funds at the interest rate included in the calculation of the discount factor.

when calculating the internal rate of return IRR. When choosing from several investment projects, NPV must be calculated for each of them, and then select the option with the highest value.

Examples of calculating NPV manually and in Excel

Let's assume that there are two investment projects in which an investor could potentially invest his money. To select the most appropriate option, it is worth determining the net present value for each of them.

Both options require an initial investment of 1.5 million rubles, a discount rate of 20% and an investment period of 5 months.

Table 2. Calculation of net present value for Project No. 1

Index
	1 500 000 + 65 833,3 + 389 699,1 + 361 816,8 + 331 665,5 = 63 874,8

The NPV indicator turned out to be 63,874.8. A positive value indicates that the project promises growth and is suitable for effective investment.

Carrying out manual calculations is cumbersome and prone to errors, so it seems relevant to use Excel to calculate NPV.

In the table editor you need:

• select the NPV financial function;
• in the window that opens, indicate one by one the discount rate, the array of cash inflows and the amount of the initial investment.

Table 2. Calculation of net present value for Project No. 2

	1 500 000 + 236 666,7 + 317 236,1 + 275 034,2 + 191 983,5 +173 852,7 = - 178 001

The NPV indicator turned out to be -178,001. A negative value indicates that the project is unprofitable, so it makes no sense to invest in it.

A similar calculation can be carried out using the Excel spreadsheet editor.

The detailed calculation procedure can be downloaded in Excel format.

The calculations showed that of the two projects under consideration, the first option, for which the Net Present Value turned out to be above 0, seems profitable for investment.

when calculating the internal rate of return IRR. How to determine the discount rate? Typically, in practice, take the highest rate on alternative investments. For example, the interest rate on bank deposits is 10%, the financial market rate is 14%, and leasing the capital used in an investment project will bring a 20% return. As a result, the discount rate is 20%.

The procedure for calculating net present value stems from the essence of this important indicator of investment analysis

Advantages and disadvantages of the indicator

Currently, NPV is actively used in the practice of assessing the profitability of investment projects. The advantages of this indicator include:

• clear criteria for making an investment decision - initial investment, revenue at each stage, profitability of alternative investments;
• accounting for changes in the value of money over time;
• taking into account project risks through the use of different discount rates.

However, NPV cannot be considered an absolutely accurate ratio. In many cases, correct calculation of the discount rate is problematic, which is especially typical for multi-industry projects. In addition, the calculation does not take into account the probability of the outcome of each project.

Galtsev Dmitry Alexandrovich

The term “net present value” usually denotes the value of the total discounted values ​​of payment flows, the value of which is given in real time (as of today).

Short abbreviation, NPV. In the specialized literature, other names for this quantity are often used.

For example:

• NPV (net present value). This name is explained by the fact that the flows in question are first discounted and only then added up;
• NPV (net present value). Discounting brings all financial flows to the real (today's) value of money.

International designation – NPV.

Economic meaning of NPV indicator

If we consider the indicator more deeply, we can state that this is the resulting value obtained by taking into account all outgoing and incoming cash receipts of the analyzed investment project, reduced to the time of such analysis.

The resulting value gives the investor an idea of ​​what he can expect when investing (taking into account the repayment of initial costs incurred at the initial stage of project development and periodic outflows during its implementation).

Due to the fact that all cash flows are calculated taking into account risks and time value, the NPV value of an investment project can be characterized as the value added by the project, or as the total profit of the investor.

The main goal of any business is to make a profit.

In order not to invest in risky projects, the investor conducts a preliminary assessment of possible investment options. Moreover, all such proposals at the stage of their preliminary study are evaluated in comparison with the profitability of risk-free investments (bank deposit).

To understand the algorithm for calculating net present value, it should be taken into account that it is based on the methodology of discounting all available cash flows. That is why the decision to invest in a particular project is made after a preliminary calculation of the NPV of the project, within the framework of which:

• all expected inflows and outflows of capital for the accounting period are assessed;
• its value is determined (for the investor this value is considered as a discount rate);
• taking into account the mentioned rate, all incoming and outgoing flows are discounted;
• the results are summarized. The result obtained is the value of the present value of the project.

The resulting number can have the following values.

NPV = 0. This informs the investor that he has a probability of returning the invested funds with a minimal profit.

NPV< 0. Подобные инвестиционные проекты дальнейшему рассмотрению не подлежат.

NPV > 0. The investment should bring profit.

Basic calculation formula:

Symbols used:

• N is the number of periods (months, quarters, years) for which the project being evaluated is calculated;
• t is the time period for which the net present value is considered;
• i is the calculated discount rate for the investment option being evaluated;
• CF t – expected cash flow (net) for a specified time period.

An example of how NPV is calculated (for convenience, we summarize the results in tables and diagrams).

A comparative analysis of two projects with equal starting investments is performed. Let it be 5 million rubles. Both options are characterized by approximately equal risks of uncertainty of available cash flows. For simplicity of calculation, we assume that the cost of raising funds is also the same and equal to 11.5%.

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The main difference lies in the dynamics of inflows and outflows of funds.

Using the calculation formula given above, we obtain the following discounted flows

The obtained results of the NPV of the project should be interpreted as follows:

• if the investor is offered two independent projects, both should be accepted;
• if they are mutually exclusive, then project “A” has an undeniable advantage, since it has the best NPV.

The value of the discount rate when calculating NPV

When studying net present value, you should definitely pay serious attention to the indicator - the discount rate. It is often referred to differently as the opportunity cost of investment. The indicator used in the calculation formula denotes the minimum amount of profitability that the investor considers acceptable for risks comparable to those of the project being implemented.

An investor can operate with funds raised from various sources (own or borrowed).

1. In the first case, the discount rate set is a personal assessment of the acceptable risks of the investment project under consideration.

Its assessment can take several approaches. The simplest ones are:

• Selecting a risk-free rate, adjusted taking into account the likelihood of specific risks.

As such, the yield on securities of the state in which the project is being implemented and the rate of return on corporate bonds of companies in the industry are usually considered.

• Necessary and minimum sufficient (from the point of view of a potential investor) profitability (ROE indicator).

In this case, the person making the investment decision determines the discount rate according to one of the possible options:

• funds available on deposit in a specific bank are invested in the project. Therefore, the opportunity cost should not be less than the available bank rate;
• Funds withdrawn from business and temporarily available are invested in the project. If a need arises for them, prompt withdrawal of the entire amount from the project is impossible. A loan will be required. Therefore, the market lending rate is chosen as the current cost of funds;
• The average profitability of the main business is Y%. Accordingly, you are required to receive no less from an investment project.

2. When working with borrowed funds, the rate will be calculated as a derivative of the cost of funds attracted from various sources.

As a rule, the rate set by the investor in such cases exceeds a similar indicator of the cost of borrowed funds.

This not only takes into account changes in the value of funds over time, but also introduces possible risks associated with the uncertainty of cash flows and their volumes.

This is the main reason why the discount rate is considered to be the weighted average cost of capital attracted for subsequent investment (WACC).

It is this indicator that is considered as the required rate of return on funds invested in a specific investment project. The higher the expected risks, the higher the rate.

Calculation methods for determining this parameter are less clear than graphical ones. Especially when you need to compare the attractiveness of two or more projects.

For example, comparing projects “A” and “B” (see graph) the following conclusions can be drawn:

When the rate exceeds 7%, the NPV value of project A is higher than that of B (which warns of a possible error in the choice during arithmetic comparison).

In addition, investment project “B”, indicated on the red curve graph, is subject to more significant changes due to a changing discount rate (this can be explained by different amounts of incoming funds in the same period of time).

It is necessary to take into account the fact of a significant decrease in the value of discount rates over time, which imposes certain time restrictions. They can be calculated in no more than 10 years.

Analysis of the graphs allows us to conclude that a changing discount rate leads to changes in the value of the NPV indicator (and the latter changes nonlinearly).

Therefore, for a more balanced assessment, it is necessary not only to compare the values ​​for different investment projects, but also to take into account changes in the latter at different rates.
By default, when calculating in Excel, the discount rate is assumed to be 10%.

Calculation of NPV using Excel

The program provides the ability to determine the value under consideration using the “NPV” function.

The operating algorithm is quite simple.

• select “H6” (output cell);
• after pressing fx (button) in the window that opens, first the category – “Financial”, and then the function – “NPV” is selected;
• going to the “Bet” field, select cell “C1”;
• then the range of data used (in this case this is C6:G6) is entered in a special field called “Value 1”. The second field should be left blank “Value 2”. After this, press “OK” (button).

Since the option under consideration does not take into account the initial (starting) investments in the project, you again need to enter “H6”, where you need to add an additional cell “B6” to the formula bar.

Pros and cons of the NPV calculation method

Among the advantages is the use of the so-called discounted cash flow technique. This provides the possibility of adequately assessing such a parameter as the amount of value additionally created as part of the implementation of the investment project.

But a number of serious shortcomings require their mandatory consideration.

These include the following:

• high sensitivity to ongoing changes in discount rates;
• ignoring cash flows, the receipt of which begins after the established deadline for the project.

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In the article we will consider the main indicators of the effectiveness of an investment project taking into account discounting.
We will also calculate project performance indicators taking into account discounting in Excel. This indicator is one of the key ones for drawing up a business plan.

• NPV or net present value from an investment project (NPV)
• Internal rate of return (IRR)

Let's take a closer look at these two indicators and calculate an example of working with them in Excel.
NetPresentValue (NPV, net present value) is one of the most common indicators of the effectiveness of an investment project. This is the difference between the time-discounted revenues from the project and the investment costs of it.

NPV determination method:

• We determine the current cost of costs (investment in the project)
• We calculate the current value of cash receipts from the project; for this purpose, income for each reporting period is reduced to the current date

Where:
CF – cash flow;
r – discount rate.

• We compare the current value of investments (our costs) in the project (Io) with the current value of income (PV). The difference between them will be net present value - NPV.

NPV=PV-Io (1)
NPV - shows the investor the income or loss from investing in a project compared to the income from keeping money in the bank. If NPV is greater than 0, then the investment will bring more income than a similar deposit in the bank.
Formula 1 is modified if investments in the project are carried out in several stages (periods).

Where:
CF – cash flow;
r - discount rate;
n - number of periods.

Internal Rate of Return(Internal rate of return, IRR) – determines the discount rate at which investments are equal to 0 (NPV=0), or in other words, the costs of the project are equal to its income.

IRR = r, at which NPV = f(r) = 0, is found from the formula:

Where:
CF – cash flow;
I - the amount of investment in the project in the t-th period;
n - number of periods.

This indicator shows the rate of return or possible costs when investing money in a project (as a percentage).

Example definitionNPV inExcel

In MS Excel 2010, the =NPV() function is used to calculate NPV.
Let's find the net present value (NPV) of a project that requires investment of 90 thousand rubles, and whose cash flow is distributed over time (Fig. 1.), and the discount rate is 10%.

Let's calculate the NPV using the excel formula:
=NPV(D3,C3,C4:C11)
Where
D3 – discount rate
C3 – investments in period 0 (our investment costs in the project)
C4:C11 – project cash flow for 8 periods

As a result, the net present value indicator is 51.07 >0, which means that

For determiningIRR inExcel
Excel uses a built-in function to determine IRR
=NETINDOH().
But since in our example the data arrived at equal time intervals, you can use the function =VSD(C3:C11)

The return on investment in the project is 38%.

Marketing research conducted by the company showed a growing market demand for New Product and sufficient market capacity for production development. The equipment used is obsolete and physically worn out, its operation requires high repair and maintenance costs and does not allow the production of high-quality products,
The company's management decided to renewal of fixed assets and purchase of new generation equipment, whose productivity is significantly higher due to the use of more advanced technology for manufacturing competitive products. Investment project financing is supposed to be carried out at the expense of the enterprise’s own capital. In order to objectively make a decision on the implementation of an investment project for the development of a company’s production capacity, it is necessary to evaluate the effectiveness of the idea in a multilateral manner.

Investment project is formed using the following data:

ALGORITHM FOR ASSESSING THE ECONOMIC EFFICIENCY OF AN INVESTMENT PROJECT

1. Assessing the effectiveness of an investment project in real prices without taking into account inflation

Step 1 Calculation of cash receipts from production activities when modernizing production and when abandoning it
When making calculations, assume that depreciation on equipment is calculated using a linear method, and the flow of payments from production activities consists of net profit and depreciation.

Step 2 Calculation of the flow of payments due to the movement of fixed and working capital during the modernization of production and when abandoning it
When making calculations, it is necessary to remember that an increase in the average annual level of working capital leads to additional expenses, and a decrease leads to the receipt of funds for the enterprise. When implementing a project, the change in the average annual level of working capital at the end of the first year is defined as the difference in the average annual level of working capital when modernization is abandoned (year zero) and when it is carried out. When determining changes in the average annual level of working capital in the 10th year, it is necessary to subtract the cost of inventories of materials after 10 years from the average annual level of working capital in the 9th year, taking into account “tax protection”. When implementing a project, the cost of fixed capital is determined by the cost of new equipment minus the salvage value of old equipment. Fixed capital in the 10th year is reduced by the liquidation value of the equipment, taking into account “tax protection”.

Step 3 Calculation of final payment flows, formation of effective cash flow characterizing the investment project

Step 4. Calculation of criteria for the effectiveness of an investment project, payback and profitability indicators
Calculations should be carried out for the case of project implementation, refusal of modernization and for incremental flow.
In this case, it is necessary to use the following formulas:

NPV = ∑ CFt / (1 + i)t , NTV = ∑ CFt * (1 + i)N-t , IRR = i at NPV = 0 , MIRR = (TV / PV)1/N – 1, PI = (∑CIFt *(1 +i)N- t) / (∑COFt*(1 + i)N-t), R = ∑CF+ / ∑CF- , where: CIF - positive payment flows; COF - negative payment flows; CF - total payment flows (positive and negative); t - year of calculation (0... 10); i - discount rate; N - forecast period (10 years); PV - discounted cumulative negative flow of payments; TV - increased cumulative positive flow of payments; ∑CF+ is the sum of positive elements of the discounted payment flow; ∑CF- is the sum of the negative elements of the discounted payment flow.

When determining static and dynamic payback periods, the moment is monitored when the cumulative and discounted cumulative payment flows, respectively, become positive. Then use the following formulas:

PPS = i + /cumulative payment flow/payment flow i/payment flow i+1/ PPd = i + /discounted cumulative payment flow i/discounted payment flow i+1/ where: i is the year after which the cumulative (discounted cumulative) the payment flow becomes positive.

The calculation of net present value, internal rate of return and modified rate of return must be carried out using the financial functions of MS Excel.
Functions for determining capital efficiency:
1) determination of net present value

NPV (rate; value1; value 2; ...), where: rate - discounting machine for one period, value I, value 2, ... - from I to 29 arguments representing expenses and income.

2) determination of the internal rate of return

IRR (values; assumption), where: values ​​are an array or a reference to cells containing numbers for which you want to calculate the internal rate of return; a guess is a quantity that is assumed to be close to the IRR result.

3) determination of the modified rate of return

MVSD (values; financing rate; reinvestment rate), where: values ​​- an array or reference to cells containing numeric values. These numbers represent a range of cash payments (negative values) and receipts (positive values) occurring at regular periods of time; financing rate - the rate of interest paid on money used in cash flows; reinvestment rate - the rate of interest received on cash flows when they are reinvested.

To determine the internal rate of return by calculation, you need to resort to the graphical method. To do this, it is necessary, using the capabilities of the MS Excel editor, to find the values ​​of net present value for the cases of project implementation, refusal of modernization and for the incremental flow when the discount rate changes from 0 to 30 in steps of 1%.
After this, you need to plot the dependence of NPV on the discount rate. Characteristics of a chart: a graph with markers marking data points; 3 rows incremental flow, project implementation, refusal of modernization; presence of a legend; main grid lines; X axis (categories) is automatic. Based on the identified schedule, the value of the internal rate of return is determined.

2. Assessing the effectiveness of an investment project taking into account environmental factors

Step 5. Analysis of the sensitivity of net present value and internal rate of return to changes in the price of manufactured products
The efficiency criteria calculated above for an investment project for the modernization of existing production characterize the design solution with deterministic values ​​of the main components of the payment flow. In practice, to clarify the degree of influence of various parameters of the initial data on performance indicators, an analysis of the sensitivity of design solutions to various disturbing influences is carried out. In our case, the disturbing influences include: the cost of a unit of production, its price, total costs and distribution costs, as well as sales volume.
At the first stage, multiple calculations are carried out when varying one of the selected factors influencing performance indicators. At the next stage, based on the calculation results, a graph of the dependence of net present value and internal rate of return on a given factor is constructed.
The change in NPV is found according to the formula

NPV = ((NPVi - NPV base) / NPV base)* 100%.

Next, a graph of the effect of product price on NPV and IRR is constructed with the following chart characteristics:
– non-standard diagram – graph with two axes;
– 2 rows: NPV and IRR;
– presence of a legend;
– main grid lines;
– the main and auxiliary X axes (categories) are automatic.
The graph of the dependence of NPV changes on price changes has the following diagram characteristics:
– a graph with markers marking data points;
– Row I: change in NPV in %;
– main grid lines;
-X-axis (categories) automatic.

Step 6. Assessing the effectiveness of an investment project taking into account the inflation factor

In section 4.1, when assessing the effectiveness of an investment project, all monetary values ​​were established taking into account current prices, i.e. the decline in the real purchasing power of money over the period covered by the project was not taken into account. However, in modern Russian conditions, inflation often plays a decisive role and without taking it into account, the calculation results are not reliable enough.
Taking into account the inflation factor in investment analysis is achieved by including two operations in the models for calculating efficiency criteria. The first is associated with the transition from the real rate of return to the nominal interest rate, the second - with the inflationary adjustment of cash flows using compound interest rates.
The nominal rate of return contains an inflation premium. The nominal interest rate is determined from the equality

(1+k) = (1+g)*(1 + h), where: k - nominal rate of return; r - real rate of return; h - those of inflation.

Thus, the nominal rate of return is equal to

K = r + h + r*h.

The nominal rate of return is used in models for analyzing investment projects to discount payment streams, and also as a basis for comparison with the internal rate of return of the project.
Preliminary correction of cash flows is carried out according to the formula

Рt = pt * (1 + h) t, where: pt - expected real net income at time t; Pt is the expected nominal net income at time t; h - inflation rate.

Step 7 Analysis of the influence of the method of calculating depreciation on the amount of net present value

To simplify calculations when determining the amount of depreciation charges, it is necessary to use the financial and economic functions of MS Excel.
Functions for determining the amount of depreciation charges:
1) depreciation calculation using the straight-line method

Nuclear submarines (initial cost; residual value; operating time),

2) depreciation calculation using the sum of numbers method

ASCH (initial cost; residual value; operating time; period),

3) depreciation calculation using the fixed-declining balance method

FOO (initial cost; residual value; operating time; period; months),

4) depreciation calculation using the double-declining balance method

DDOB (initial cost; residual value; operating time; period; coefficient), where: initial cost is the cost of acquiring the asset; residual value is the value at the end of the depreciation period; operating time is the number of periods over which the property is depreciated; period is the period during which depreciation is to be calculated. The period must be measured in the same units as the operating time; months is the number of months in the first year. If the months argument is omitted, it is assumed to be 12. The factor is the interest rate on the declining balance. If the coefficient is omitted, then it is assumed to be equal to 2.

Economic assessment of the effectiveness of an investment project in Excel. Download complete template

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NetPresentValue (NPV/NPV, net present value) is one of the most common indicators of the effectiveness of an investment project. This is the difference between the time-discounted revenues from the project and the investment costs of it.

Advantages and disadvantages:

Positive qualities of NPV:

1. Clear decision-making criteria.
2. The indicator takes into account the time value of money (the discount factor is used in the formulas).

Negative qualities of NPV:

1. The indicator does not take into account risks. Although the discount rate is higher for riskier projects and lower for less risky ones, the less risky one is chosen from two projects with the same NPV.
2. Although all cash flows (the discount factor may include inflation, but often this is just the rate of return that is included in the calculated project) are forecast values, the formula does not take into account the probability of the outcome of the event.

In order to evaluate the project taking into account the probability of the outcome of events, proceed as follows:

Key initial parameters are identified. Each parameter is assigned a series of values ​​indicating the probability of the event occurring. For each set of parameters, the probability of occurrence and NPV are calculated. Next comes the calculation of the mathematical expectation. As a result, we get the most probabilistic NPV.

NPV determination method:

• We determine the current cost of costs (investment in the project)
• We calculate the current value of cash receipts from the project; for this purpose, income for each reporting period is reduced to the current date

Where:
CF – cash flow;
r – discount rate.

• We compare the current value of investments (our costs) in the project (Io) with the current value of income (PV). The difference between them will be net present value - NPV.

NPV=PV - Io

NPV - shows the investor the income or loss from investing in a project compared to the income from keeping money in the bank. If NPV is greater than 0, then the investment will bring more income than a similar deposit in the bank.
Formula 1 is modified if investments in the project are carried out in several stages (periods).

Where:
CF – cash flow;

r – discount rate;
n – number of periods.

Internal Rate of Return(Internal rate of return, IRR/GNI) – determines the discount rate at which investments are equal to 0 (NPV=0), or in other words, the costs of the project are equal to its income.

IRR = r, at which NPV = f(r) = 0, is found from the formula:

Where:
CF – cash flow;
I – the amount of investment in the project in the t-th period;
n – number of periods.

This indicator shows the rate of return or possible costs when investing money in a project (as a percentage).

Example

The corporation must decide whether to introduce new product lines. The new product will have launch costs, operating costs, and incoming cash flows for six years. This project will have an immediate (T=0) cash outflow of $100,000 (which may include machinery as well as personnel training costs). Other cash outflows over years 1-6 are expected to be $5,000 per year. Cash inflows are expected to be $30,000 for each year 1-6. All cash flows are after taxes, and no cash flows are projected for year 6. The discount rate is 10%. Present value (PV) can be calculated for each year:

Year	Cashflow	Present Value
T=0		-$100,000
T=1		$22,727
T=2		$20,661
T=3		$18,783
T=4		$17,075
T=5		$15,523
T=6		$14,112

The sum of all these values ​​is the true net present value, which is $8,881.52. Since the NPV is greater than zero, it would be better to invest in the project rather than putting money in the bank, and corporations should invest in the project if there is no alternative with a higher NPV.

The same example with formulas in Excel:

• NPV (rate, net_inflow) + initial_investment
• PV (rate, year_number, yearly_net_inflow)

For more realistic problems, other factors such as tax calculations, uneven cash flow and values, and the availability of alternative investment opportunities will need to be considered.

In addition, if we use the formulas mentioned above to calculate NPV, then we see that the incoming cash flows (inflows) are continuous and have the same amount; in the formula

can be used

= 4.36.

As mentioned above, the result of this formula, if multiplied by the annual Net cash flows and reduced by the initial cost of funds, would be Net Present Value (NPV), so − 100,000 = $8881.52 Since NPV is greater than zero, then it was it would be better to invest in a project than to do nothing, and corporations should invest in the project if there is no alternative with a higher NPV.

Example definitionNPV/NPV inExcel 2010

In MS Excel 2010, the =NPV() function is used to calculate NPV.
Let's find the net present value (NPV) of a project that requires investment of 90 thousand rubles, and whose cash flow is distributed over time (Fig. 1.), and the discount rate is 10%.