Description
NPV returns a Number specifying the net present value of an investment based on a series of periodic cash flows (payments and receipts) and a discount rate.
Arguments
rate is a Number that specifies the discount rate over the length of the period, expressed as a decimal.
values is a Number or Currency type array that specifies cash flow values. Negative values represent payments and positive values receipts. The cash flows must occur at regular intervals such as monthly or yearly.
Action
NPV returns a Number specifying the net present value of an investment based on a series of periodic cash flows (payments and receipts) and a discount rate.
Example
Suppose that someone offers to pays you $1000 after 1 year, $2000 after 2 years, $1500 after 3 years and $1200 after 4 years. If the discount rate (the time value of money) is 5 percent, the value of this offer to you today is:
NPV (0.05, [1000, 2000, 1500, 1200])
The formula returns 5049.44 (rounded to 2 decimals). So this scheme is worth $5,049.44 to you today. This is less than the sum of the payments, which is $5700, since you have to wait for this money.
Comments
The NPV and
IRR functions are related since NPV (IRR (values), values) = 0. That is, the internal rate of return of a sequence of cash flows is the discount rate for which that sequence of cash flows has a net present value of 0.