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NPV in Excel | How to Calculate Net Present Value in Excel? - YouTube
Channel: WallStreetMojo
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hello everyone hi welcome to the wall
streetmojo channel to know more about
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this video and view in Excel watch the
video till the end and if you're new to
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this channel then you can subscribe us
by clicking the Bell icon that's given
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below. Know welcome all of you today we have a topic NPV which is a financial
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function we use in capital budgeting
most of time. Let's understand this topic
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in a detail format. As you can see there
is an NPV function but before that we
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need to understand some other than
integrity of this function. Now NPV in
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Excel is also known as the net present
value in Excel which is used to
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calculate the difference of the PV of
cash inflow minus PV of cash outflow
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okay as an input. Now NPV in Excel
how does it works?. See NPV a function
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on Excel calculates a net present value
for a periodic cash flow based on the
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supplied discount okay. Now NPV in
Excel is generally leveraged under the
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financial calculation. Well in financial
project NPV in Excel is useful
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to in finding the values of an
investment or analyzing the feasibility
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of the project and it is also
recommended that it is better for the
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financial analyst to use the XNPV
function okay that is the NPV function
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in Excel okay. Now how does this NPV
formula work? So you will say is equal to
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NPV then we have values for the NPV in
Excel accepts the arguments like rate
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value 1 and value 2 so the rate it is
a discount rate over the length of the
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period value 1 and value 2. Value 1 is
required they are numerical value that
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represents a series of the pavement and
income where outgoing payments are
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mentioned as negative numbers and the
incoming payments are mentioned as a
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positive number so what is the NPV
equation that will go about. The
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calculation of the NPV of an investment
in an Excel NPV function is based upon
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the equation as the value is divided by
1 plus rate raised to the
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number of years so how do you use this
formula very important question how to
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use the NPV formula in Excel well. Let's
take a few NPV Excel calculation
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examples before using NPV function in
excel workbook. Suppose that we are let's
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say working on the following data on
cash flows outflow and inflow. Below
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is the spreadsheet that shows a simple
example of the NPV function in
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excel. The rate argument that is supplied
to the function is stored in a cell C11
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and the value of the argument have been
stored in C5 to C9 all of this one's.
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okay and the NPV in excel is
entered in C13 right. The function gives
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the result over here based on what we
write NPV the rate, the values close the
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bracket so it gives 231.63. Now
note that in
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this example the initial investment of
500 dollars which is shown in
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C5 was done at the end of the first
period and that is why this value is
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considered as the first argument that is
value 1 to the NPV function in Excel.
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Now the NPV formula in excel example
number 2. See the above spreadsheet
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okay it shows a further example in which
the first payment is made at the start
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of the first period and how this payment
should be considered in the NPV function
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X and so again the rate of 10% is stored
in C11 in the cash flows, cash flow value
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argument of the transaction is stored in
between the range of C5 to C9.
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Again the rate is stored at 10% here and
the transaction values are given with
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the initial investment so we will write
something like this so we
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so now we are if the initial investment
is 500 which is shown in C5 here and was
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done at the start of the first period
and this values is not included in the
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argument to the NPV function in Excel
instead the first cashflow is added to
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the NPV Excel results so as described in
example number 2 the net present value
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is established on the future cash flows
in it the first cash flow happens at the
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start of the first period the first cash
flow value must be added to the NPV
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excel result and it should not be
included on value argument. Now what
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are some of the things that you should
remember while dealing with this kind of
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formulas first know the NPV investment
begins one period ahead of the date of
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the value one cash flow and it ends with
the last cash flow in the list so the
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NPV calculation in Excel is based upon
the future cash flows. You know if the
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first cash flow is made at the beginning
of the first period the first value must
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be explicitly added to the NPV result
and it should be excluded in the
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value arguments like for example you
know you what we have seen above ones.
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let's say that in the number of the cash
flows in the list of the values the
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formula for the NPV will be value
divided by (1+R)^t okay .
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So if the arguments
are subject are supplied individually
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the number, logical values, blank cells,
and the text representation of the
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numbers they evaluated as the numerical
value while the others of the cell in
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the text are error and are ignored from
the function now if the arguments are
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supplied in the what we call as the
range okay all the numerical value I'm
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saying all the numerical values in the
range are ignored
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specifically okay. So we need to enter
the transaction payments and income
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values in a right sequence as the NPV
function use the order of the second
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argument that is value one two to
evaluate the order of the cash flow and
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the key difference between the NPV function and PV function
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is that the PV allows the
cash flows to begin with either at the
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beginning or at the end of the period
and the NPV function is basically a
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latest version okay it is the latest
version of the Excel and it can be
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accepted as many as 254 values
arguments value arguments basically but
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with Excel 2003 only up to 20 now in ten
minute only 29 values can be
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supplied by this function so that's it
for this particular video if you learn
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watching this video then don't forget to
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us for all the latest updates thank
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