Financial Modeling Tutorials
 Financial Modeling Basics
 Excel Modeling
 Financial Functions in Excel
 Sensitivity Analysis in Excel
 Sensitivity Analysis
 Capital Budgeting Techniques
 Time Value of Money
 Future Value Formula
 Present Value Factor
 Perpetuity Formula
 Present Value vs Future Value
 Annuity vs Pension
 Present Value of an Annuity
 Doubling Time Formula
 Annuity Formula
 Annuity vs Perpetuity
 Annuity vs Lump Sum
 Deferred Annuity Formula
 Internal Rate of Return (IRR)
 IRR Examples (Internal Rate of Return)
 NPV vs XNPV
 NPV vs IRR
 NPV Formula
 NPV Profile
 NPV Examples
 PV vs NPV
 IRR vs ROI
 Break Even Point
 Payback Period & Discounted Payback Period
 Payback period Formula
 Discounted Payback Period Formula
 Profitability Index
 Cash Burn Rate
 Simple Interest
 Simple Interest vs Compound Interest
 Simple Interest Formula
 CAGR Formula (Compounded Annual Growth Rate)
 Effective Interest Rate
 Loan Amortization Schedule
 Mortgage Formula
 Loan Principal Amount
 Interest Rate Formula
 Rate of Return Formula
 Effective Annual Rate
 Effective Annual Rate Formula (EAR)
 Daily Compound Interest
 Monthly Compound Interest Formula
 Discount Rate vs Interest Rate
 Rule of 72
 Geometric Mean Return
 Real Rate of Return Formula
 Continuous compounding Formula
 Weighted average Formula
 Average Formula
 Average Rate of Return Formula
 Mean Formula
 Mean Examples
 Population Mean Formula
 Weighted Mean Formula
 Harmonic Mean Formula
 Median Formula in Statistics
 Range Formula
 Outlier Formula
 Decile Formula
 Midrange Formula
 Quartile Deviation
 Expected Value Formula
 Exponential Growth Formula
 Margin of Error Formula
 Decrease Percentage Formula
 Percent Error Formula
 Holding Period Return Formula
 Cost Benefit Analysis
 Cost Benefit Analysis Examples
 Cost Volume Profit Analysis
 Opportunity Cost Formula
 Opportunity Cost Examples
 Mortgage APR vs Interest Rate
 Normal Distribution Formula
 Standard Normal Distribution Formula
 Normalization Formula
 Bell Curve
 T Distribution Formula
 Regression Formula
 Regression Analysis Formula
 Multiple Regression Formula
 Correlation Coefficient Formula
 Correlation Formula
 Population Variance Formula
 Covariance Formula
 Coefficient of Variation Formula
 Sample Standard Deviation Formula
 Relative Standard Deviation Formula
 Standard Deviation Formula
 Volatility Formula
 Binomial Distribution Formula
 Quartile Formula
 P Value Formula
 Skewness Formula
 R Squared Formula
 Adjusted R Squared
 Regression vs ANOVA
 Z Test Formula
 FTest Formula
 Quantitative Research
Related Courses
Net Present Value Formula
Net present value is used mainly for making investment decisions. How would one understand whether an investment is good enough? NPV will help you decide.
Here’s the Net Present Value NPV formula (when cash arrivals are even):
NPV_{t=1 to T } = ∑ Xt/(1 + R)^{t} – Xo
Where,
 X_{t }= total cash inflow for period t
 X_{o }= net initial investment expenditures
 R = discount rate, finally
 t = total time period count
The NPV formula (when cash arrivals are uneven):
NPV = [C_{i1}/ (1+r)^{1} + C_{i2}/(1+r)^{2} + C_{i3}/(1+r)^{3} + …] – X_{o}
Where,
 R is the specified return rate per period;
 C_{i1} is the consolidated cash arrival during the first period;
 C_{i2} is the consolidated cash arrival during the second period;
 C_{i3} is the consolidated cash arrival during the third period, etc…
Recommended Courses
Example of Net Present Value Formula
Let’s take a simple example to illustrate net present value formula.
Hills Ltd. would like to invest in a new project. The company has the following information for this new investment –
 Cost of the new investment as of now – $265,000
 The project will receive cash inflows as follows –
 Year 1 – $60,000
 Year 2 – $70,000
 Year 3 – $80,000
 Year 4 – $90,000
 Year 5 – $100,000
Find out the NPV and conclude whether this is a worthy investment for Hills Ltd. Assume the rate of return as 10%.
By using the above information, we can easily do the NPV Calculation of the new investment.
Cash Inflows from Investments = $60,000/1.1 + $70,000/1.1^2 + $80,000/1.1^3 + $90,000/1.1^4 + $100,000/1.1^5
= 54,545.5 + 57,851.2 + 60,105.2 + 61,471.2 + 62,092.1 = 296,065.2
4.9 (927 ratings)
Net Present Value = Cash Inflows from Investments – Cost of Investments
Or, Net Present Value = $296,065.2 – $265,000 = $31,065.2
From the above result, we can be sure that this is a worthy investment; because the NPV of this new investment is positive.
Using NPV Formula for Valuation – Alibaba Case Study
Alibaba will generate $1.2 billion of free cash flows in March’19. As we note below that Alibaba will generate a predictable positive Free Cash Flows.
 Step 1 here is to apply NPV formula to calculate the present value of FCFF explicit period
 Step 2 is to apply NPV formula to calculate PV of the terminal value
Sum total of the NPV Calculation in step 1 and 2 gives us the total Enterprise Value of Alibaba.
Below is the table that summarizes Alibaba’s DCF Valuation output.
Explanation of Net Present Value Formula
The NPV formula has two parts.
 The first part talks about cash inflows from investments. When an investor looks at an investment, he is presented with the projected future values of the investments. He then can use the present value method [i.e. PV = FV / (1 + i) ^n, where PV = Present Value, FV = Future Value, I = interest (cost of capital), and n = number of years] to discount the future values and find out the cash inflows from the investments at the present date.
 The second part talks about the cost of investments of the project. It means how much an investor has to pay for the investments at the present date.
If the cost of investments is lesser than the cash inflows from the investments, then the project is quite good for the investor since he is getting more than what he is paying for. Otherwise, if the cost of investments is more than the cash inflows from the investments, then it’s better to drop the project since the investor has to pay more than what he is paying as of now.
Use of NPV Formula
By using this NPV formula, the investors find out the difference between the cash inflows from the investments and the cost of investments.
If the difference is positive, it’s a great project. If the difference is negative, it’s not worthy for the investors.
It is used for making prudent business decisions for the following reasons –
 First of all, the NPV formula is very easy to calculate. Before making any decisions regarding investments, if you know how to calculate NPV; you will be able to make better decisions.
 Secondly, it compares the present value of both cash inflow and cash outflow. As a result, the comparison provides the right perspective for the investors to make the right decision.
 Thirdly, NPV offers you a conclusive decision. After calculating this, you will directly get to know whether to go for the investments or not.
Net Present Value – NPV Calculator
You can use the following NPV Calculator
Year1  
Year2  
Year3  
Year4  
Year5  
R (percentage)  
Cash Inflows from Investments  
Cost of Investments  
Net Present Value Formula =  
Net Present Value Formula = 
 

Net Present Value in Excel (with excel template)
Let us now do the same example above in Excel.
This is very simple. You need to provide the two inputs of Cash Inflows from Investments and Cost of Investments.
You can easily calculate the NPV in the template provided.
Step 1 – Find the present value of the cash inflows
Step 2 – Find the sum total of the present values
Step 3 – NPV Calculation = $296,065.2 – $265,000 = $31,065.2
Recommended Articles:
This has been a guide to Net Present Value Formula, practical examples, and NPV calculator along with excel templates. You may also have a look at these articles below to learn more about Financial Analysis –
 Value Formula in Excel – Examples
 Examples of Discounted Payback Period Formula
 NPV Function in Excel
 IRR vs NPV
 NPV vs XNPV  Top Differences
 Capital Gains Yield Formula
 Dividend Discount Model
 Discounted Payback Period
 35+ Courses
 120+ Hours of Videos
 Full Lifetime Access
 Certificate of Completion
 Basic Microsoft Excel Training
 MS Excel 2010 Training Course: Advanced
 Microsoft Excel Basic Training
 Microsoft Excel 2013 – Advanced
 Microsoft Excel 2016 – Beginners
 Microsoft Excel 2016 – Advanced