Net Present Value

NetPV Function

This function calculates NPV in a manner that is consistent with the Excel IRR function

It is also possible to implement the half-year convention by setting the last optional parameter to 1. (See Below)

Here are the inputs and form of the function:

=NETPV(R,Cashflows,Optional HalfYear)

Present Value Example

Required Inputs

R: is the discount rate

Cashflows: Are a vector of cashflows

Optional HalfYear: To use the half year convention set this value to 1

Spreadsheet View

Example

10.00%

$-985 …$1200

Blank, 0, or 1

Row/Col

B

C

D

E

F

G

 

17

Discount Rate

10.00%

 

 

 

 

 

18

 

0

1

2

3

4

 

19

Cashflows

-$985

$75

$120

$100

$1,200

 

20

 

 

 

 

 

 

 

21

Using the NetPV functions

Contents of left Cell

 

 

 

22

$77.10

=NETPV(C17,C19:G19,0)

 

 

 

23

$128.94

=NETPV(C17,C19:G19,1)

 

 

 

24

Using the NPV functions

 

 

 

 

 

 

25

$77.10

=NPV(C17,D19:G19)+C19

 

 

 

26

$128.94

=NPV(C17,D19:G19)*(1+C17)^0.5+C19

 

27

 

 

 

 

 

 

 

28

$77.10

=NETPV(C17,C19:G19)

 

 

 

29

 

 

 

 

 

 

 

30

 

 

 

 

 

 

 

31

 

 

 

 

 

 

 

Why the half year convention?

The half year convention adjusts the present value to reflect the fact that cash flows in most situations are received throughout the year rather than on the last day of the year. The assumption of getting all the cash flows at the end of the year lowers the NPV of the project. The half year convention adjusts the NPV and assumes the cash flow is received in the middle of the year. This will in general increase the NPV of the project and is frequently a more accurate description of the actual cash flows

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Copyright 2003 Pieter A. Vandenberg All rights reserved.