Excel - NPV function
NPV function calculates the net present value of a future positive or negative cash flows. For example, suppose you will receive an income of $100 one year later, how much does it worth today? $100 received one year later worth less than $100 received today. Because if you have $100 in hand at this moment and invest it, suppose the return rate is 5%, then it will grow into $105 one year later. Next, we will show you how to calculate the net prevent value of $100 received one year later. Let the net prevent value of $100 received one year later be X, and suppose the investment return rate is 5%. Then X*(1+0.05)=$100 So, X=$100/(1+0.05)=$95.24 It means that if you have $95.25 in hand right now and invest it with 5% investment return, it will grow into $100 one year later. Therefore, $100 received one year later is worth $95.24 today. That is to say, the net prevent value (NPV) of $100 received one year later is $95.24. If you use NPV function, the formula is: =NPV(0.05, 100) What is the ...