NPV

NPV(rate, values)

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.

Parameters

rate - A Number that specifies the discount rate over the length of the period, expressed as a decimal.
value - A Number or Currency type array that specifies cash flow values. Negative values represent payments and positive values receipts. The cash flow must occur at regular intervals, such as monthly or yearly.

Return value

Number value.

Example

Suppose that someone offers to pay you $15000 after 1 year, $20000 after 2 years, $25000 after 3 years and $12000 after 4 years. If the discount rate (the Time value of money) is 6.5 percent, the value of this offer to you today is:

NPV(0.065, [15000, 20000, 25000, 12000])

The formula returns 61741.8. So this scheme is worth $61,741.8 to you today. This is less than the sum of the payments, which is $72000, since you have to wait for this money.

Note: The NPV and IRR functions are related since NPV (IRR (values), values) = 0, which means that the internal rate of the return of a sequence of cash flow is the discount rate for which that sequence of cash flow has a net present value of 0.