NPV()

NPV()

Category: Financial

Syntax: NPV ( payment ; interestRate )

Parameters: payment ”a repeating field that contains one or more values representing loan and payment amounts; interestRate ”an interest rate, expressed as a decimal number.

Description: Returns the Net Present Value of a series of unequal payments made at regular intervals, assuming a fixed interestRate per interval. The repeating field specified in the first parameter should contain all loan and payment amounts.

Examples:

Imagine someone borrows $300.00 dollars from you and repays you $100, $50, $100, and $125 at regular intervals.

Assuming an interest rate of 5%, the NPV() function can tell you the actual profit, in today's dollars, that will be realized from this transaction. To calculate this, you would place the following values in a repeating number field: -300, 100, 50, 100, and 125. Then, use the formula:

 Round (NPV (Payments; .05)), 

which returns $28.39 . Your actual profit on the transaction would be $75 (simply the sum of the payments minus the original loan). That $75, however, is collected over time, so the present value is discounted by the assumed interest rate. The higher the interest rate, the less the NPV of the $75.