NPV Calculation

Question:     I have cash flow projections for two projects, how do I select the most viable project between the two?

Answer:        By using The Net Present value (NPV), function and selecting the project with the highest  NPV

Why:            Calculates the net present value of an investment by using a discount rate and a series of future payments (negative values) and income (positive values)     

Applies To: Excel 2003, 2007 and 2010

  1. The initial investment for both projects is $25 000.00 as displayed in the following screen shot






2.  To calculate the NPV for machine A, select cell B11 and type: =NPV (20/100, B7:B10)-B6.

The answer will be $12 114.20

3.  To calculate the NPV for machine B, select cell E11 and type: =NPV (20/100, E7:E10)-E6

        The answer will be $ 9 664.35






Project A will therefore merit further consideration because it has a higher NPV of $ 12 114.20 than project’s B value of $ 9 664.35

Syntax:         NPV (rate, Value1, [value2],….)

The NPV function syntax has the following arguments (argument: A value that provides information to an action, an event, a method, a property, a function, or a procedure)

Rate    Required. The rate of discount over the length of one period.

Value1, value2, …   Value1 is required, subsequent values are optional. 1 to 254 arguments representing the payments and income


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