**How to Calculate Net Present Value using Excel?**

The calculation of net present value is used when a business has to identify a viable investment opportunity. There are many ways to calculate the NPV. The simplest way is:

**By Use of NPV function in Excel:**

The NPV function consists of the following arguments:

**=NPV (Rate, FCF _{1}, FCF _{2}………… FCF _{n})**

** **

**This function gives the NPV of an investment based on a discount rate and a series of cash outflows (future payments) and cash inflows (income). **** **

The calculation of NPV is based on expected future cash flows of a project. For example, if cash flows occur at the beginning of the period, the first value should be added to the NPV result, should not include in the values arguments.

### NPV Example:

**Consider the following example to understand how NPV function works.**

Suppose a company Atlantic World Co. is considering an investment in a machine that costs $150,000 and the additional cash inflows from the machine will be $80,000, $ 50,500, and $76,600 over the next three years. The firm’s cost of capital is 12%.

**Consider the following example to understand how NPV function works.**

**DATA (A) ****DESCRIPTION (B)**

1 12% Annual Discount Rate (Cost of Capital)

2 (150,000) Initial Cost of Investment

3 80,000 Return from First Year

4 50,500 Return from second Year

5 76,600 Return from Third Year

**FORMULA **

=NPV(A1,A2,A3,A4,A5)

=14,472.53

Net Present Value of the Investment is $14,472.53

As NPV of the purposed investment is positive so the company should invest in the machine.

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