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NPV

The NPV function in Google Sheets calculates the net present value of an investment based on a series of periodic cash flows and a discount rate. This powerful financial tool helps in evaluating the profitability of investments.

Function Syntax and Parameters

Syntax: NPV(discount, cashflow1, [cashflow2, ...])

Parameters:

  • discount: The discount rate used to calculate the present value of cash flows.
  • cashflow1: The first cash flow to be considered.
  • cashflow2, ...: [Optional] Additional cash flows to be considered.

Step-by-Step Tutorial

  1. Calculating NPV with individual cash flows:

    • Example: =NPV(0.1, 1000, 2000, 3000)
    • Result: The result will be the net present value of the cash flows using a discount rate of 10%.

  2. Calculating NPV with a range of cells containing cash flows:

    • Example: If A1:A5 has the cash flows 1000, -500, 2000, 3000, -1500, then =NPV(0.08, A1:A5) will return the net present value using a discount rate of 8%.

Use Cases and Scenarios

  1. Investment Evaluation: Determine the current value of future cash flows.
  2. Business Decision Making: Assess the profitability of a project or investment.
  3. Capital Budgeting: Analyze the financial viability of potential investments.

Related Functions

  • IRR: Calculate the internal rate of return for a series of cash flows.
  • XIRR: Calculate the internal rate of return for cash flows that may occur at irregular intervals.
  • PV: Calculate the present value of a future stream of cash flows.

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