Part II: Working with Formulas and Functions
FIGURE 15.20
The present value of a series of future payments
Calculating net present value
The PV function used in Figure 15.20 can calculate the present value of future cash flows
if all the cash flows are the same. But sometimes that’s not the case. The NPV (net present
value) function is Excel’s solution to calculating the present value of uneven future cash
flows.
Suppose someone wanted you to invest $30,000 in a new business. In exchange for your
investment, you would be entitled to an annual dividend over the next seven years. The
estimated amounts of those dividends are shown in the schedule in Figure 15.21. Further
suppose that you would like to earn an 8% return on your money.
To determine whether this investment is worth your while, you can use the NPV function
shown here to calculate the net present value of that investment:
=NPV(C2,C5:C11)
NPV discounts each cash flow separately based on the rate, just like PV value does. Unlike
PV, however, NPV accepts a range of future cash flows rather than just a single payment
amount. NPV doesn’t have an nper argument because the number of values in the range
determines the number of future cash flows.
Although the payments can be for different amounts, they are still assumed to be at regu-
lar intervals (one year in this example). And like the other TVM functions in this chapter,
