In This Chapter
The NPV (Net Present Value) and IRR (Internal Rate of Return) functions are perhaps the most commonly used financial analysis functions. This chapter provides many examples that use these functions for various types of financial analyses.
The NPV function returns the sum of a series of cash flows, discounted to the present day using a single discount rate. The cash flow amounts can vary, but they must be at regular intervals (for example, monthly). The syntax for Excel’s NPV function is shown here; arguments in bold are required:
Cash inflows are represented as positive values, and cash outflows are negative values. The NPV function is subject to the same restrictions that apply to financial functions, such as PV, PMT, FV, NPER, and RATE (see Chapter 11, “Borrowing and Investing Formulas”).
If the discounted negative flows exceed the discounted positive flows, the function returns a negative amount. Conversely, if the discounted positive flows exceed the discounted negative flows, the NPV function returns a positive amount.
The rate argument is the discount rate—the rate at which ...