Excel: Timing of Payments in the NPV() Function

Last reviewed: November 2, 1994
Article ID: Q52221

SUMMARY

The Microsoft Excel NPV() function assumes that all payments occur at the end of each period. In many cases, however, the investment is likely to occur at the beginning of the first period. In other words, the initial investment probably will occur today, while the return on the investment probably will begin one year from now.

To account for this difference, take the initial investment out of the NPV() function and put it at the end of the formula, as in the following:

   =NPV(rate,inflow 1, inflow 2, ....., inflow n) - investment

MORE INFORMATION

For example, take a $15,000 investment that will return $5000 one year from today, $7500 two years from today, and $8200 three years from today. Assuming a hurdle rate of 10 percent, you can use the following formula

   =NPV(10%,5000,7500,8200)-15000

to calculate the net present value, which is as follows:

   $1,904.58

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Additional reference words: 1.50 2.20 3.00

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Last reviewed: November 2, 1994
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