How to Calculate Net Present Value with NPV in Excel

Decide whether a bakery’s new $48,000 oven pays for itself by discounting five years of extra profit.

You will learn to

• Discount future cash flows with NPV
• Add the year-0 investment outside NPV
• Calculate a profitability index

How it works

NPV(rate, value1, …) discounts each value by one more period than the last, starting with the FIRST value one period from now. That is why the upfront investment (year 0) must be added outside the function: =NPV(9%,B3:B7)+B2.

A positive NPV means the project earns more than your required rate; a negative NPV means it earns less. Dividing the discounted inflows by the upfront cost gives the profitability index — above 1 is good.

=NPV(E2,B3:B7)+B2