## How Does the Net Present Value of Future Cash Flows Work in Excel?

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The net present value, simply known as NPV, refers to the current worth of future cash flow. By a future cash flow we mean the amount of money that you will get in future by making an investment now.

Figure 1

• Any competent employee of any financial institution must know how to value the company’s worth, whether present value or future value. This post looks at how to value a firm’s investment alternatives, with a view of knowing which investment opportunities are worth undertaking.
• Excel has many financial functions that are so important when it comes to valuation.
• One among the most important is the Excel NPV function, which looks at the net present value of future cash flows.

## How does NPV of future cash flow work in excel?

For you to get the net present value in excel, you first need to have a discount rate, future cash flows, and an initial investment. Note that excel assumes that the discount rate provided is in an annual form.

## General syntax of the formula

`=NPV(rate, future cash flows) + Initial investment`

• While calculating the net present value of a future cash flow, you need to first understand whether the future cash flows shall be discounted monthly, semi-annually, quarterly or monthly.
• This will affect both the periods supplied as well as the rate.
• In our example above, we have specified the initial investment, annual cash flows for five periods, and the discount rate.
• To calculate the present value of future cash flows, we have used the formula below;
`=NPV(B6,D5:H5)+C5`
• When we present Enter, we get \$53, 578 as the net present value.