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NPV in Excel is a function used to calculate the present value of future cash flows. This can be an extremely useful tool for businesses that are looking to invest in new projects or products.

The NPV formula takes into account the time value of money, so it is important to use the correct inputs when calculating NPV.

In this video, we will walk you through how to use the NPV function in Excel and provide some examples of how it can be used in business.

Lets look at the syntax of NPV Function;

NPV(rate, value_date, series)

The NPV function takes three inputs: the rate (interest rate), the value date, and the series of cash flows. The NPV formula will calculate the present value of all future cash flows discounted back to the value date.

It is important to use a consistent time frame when calculating NPV. For example, you cannot use monthly cash flows for a one-year time frame.

Now let's look at an example:

Company A is considering investing in a new product that will generate cash flows of $100 per month for the next two years. The initial investment required is $2000. NPV can be used to determine if this investment is a wise decision.

The NPV function in Excel can be entered as follows: NPV(rate, value_date, series)

In this example, the rate is 0.08 (eight percent) and the value date is two years from now. The series of cash flows is $100 per month for two years. The NPV formula will calculate the present value of all future cash flows discounted back to the value date.

The NPV in this example is $507.12, so Company A should invest in the new product.

NPV can also be used to analyze a series of cash flows over time. For example, Company B is considering investing in a new product that will generate cash flows of $100 per month for the next two years. The initial investment required is $2000. NPV can be used to determine if this investment is a wise decision.

The NPV function in Excel can be entered as follows: NPV(rate, value_date, series)

In this example, the rate is 0.08 (eight percent) and the value date is two years from now. The series of cash flows is $100 per month for two years. The NPV formula will calculate the present value of all future cash flows discounted back to the value date.

Table of Content;

00:00 INTRODUCTION 00:40 NPV Formula in Excel 06:40 conclusion

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