How to Use NPV on Excel
Microsoft Excel has several business functions. One of these functions is net present value. Net present value takes the cash inflows of a project and discounts them to the present value of the cash flows. Then net present value compares the present value of cash outflows. Finally, it subtracts the cash outflows from the cash inflows. If the net present value is greater than zero, then the project will make money and the company should pursue the project.
Open Excel and place the cursor on cell A1.
Enter the interest rate for the period, then type a comma.
Enter the cash flows after the interest rate, using a "-" for cash outflows, and separate the cash flows with commas.
Close the formula with a ")." For example, a company has a project that costs $3,000. The annual cash flows for three years is $5,000. The company's borrowing rate is 10 percent. In Excel, you would type "=NPV(0.1,-3000,5000,5000,5000)."