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
- 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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