NPV function
Returns a Double specifying the net present value of an investment based on a series of periodic cash flows (payments and receipts) and a discount rate.
Syntax
NPV(rate, values( ))
The NPV function has these named arguments:
| Part | Description |
|---|---|
| rate | Required. Double specifying discount rate over the length of the period, expressed as a decimal. |
| values( ) | Required. Array of Double specifying cash flow values. The array must contain at least one negative value (a payment) and one positive value (a receipt). |
Remarks
The net present value of an investment is the current value of a future series of payments and receipts.
The NPV function uses the order of values within the array to interpret the order of payments and receipts. Be sure to enter your payment and receipt values in the correct sequence.
The NPV investment begins one period before the date of the first cash flow value and ends with the last cash flow value in the array.
The net present value calculation is based on future cash flows. If your first cash flow occurs at the beginning of the first period, the first value must be added to the value returned by NPV and must not be included in the cash flow values of values( ).
The NPV function is similar to the PV function (present value) except that the PV function allows cash flows to begin either at the end or the beginning of a period. Unlike the variable NPV cash flow values, PV cash flows must be fixed throughout the investment.
Example
This example uses the NPV function to return the net present value for a series of cash flows contained in the array Values(). RetRate represents the fixed internal rate of return.
Dim Fmt, Guess, RetRate, NetPVal, Msg
Static Values(5) As Double ' Set up array.
Fmt = "###,##0.00" ' Define money format.
Guess = .1 ' Guess starts at 10 percent.
RetRate = .0625 ' Set fixed internal rate.
Values(0) = -70000 ' Business start-up costs.
' Positive cash flows reflecting income for four successive years.
Values(1) = 22000 : Values(2) = 25000
Values(3) = 28000 : Values(4) = 31000
NetPVal = NPV(RetRate, Values()) ' Calculate net present value.
Msg = "The net present value of these cash flows is "
Msg = Msg & Format(NetPVal, Fmt) & "."
MsgBox Msg ' Display net present value.
See also
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