Excel NPV formula

[BridgestoneGal]

Please explain to me the steps to calculating Net Present Value. I know Excel has a formula for this, but I need further explanation. Please give detail like listed below.

For example here is an IRR calcualtion:

In an excel spreadsheet...
1) Input your total costs for the project in one column (lets say column "A&quot.
2) Input your income (derived savings etc...) for the project (lets say column "B&quot
3) Set up a column that adds the total costs and the total savings per year ("C1" = "A1" - "B1", "C2" = "A2" - B2", etc...).
4) Click on the cell where you want your IRR calculated
5) Enter "=IRR(" (without the quotes) and then highlight the total costs + total savings column and hit enter.

 

[carrr]

http://academic.brooklyn.cuny.edu/economic/friedman/npvirr.htm

....but, be aware, there are a slew of sites out there that proclaim Microsoft's NPV to be incorrect...use Google and check it out.

 

[BridgestoneGal]

Thanks for the warning. I plan to add the previous year's cash flow to the NPV formula. NPV(x,x:x)+x

I'm confused about all the variables and how to organize my information.

 

[carrr]

The link I posted seems to be a pretty clear walk-through. You might also try here:

http://www92.homepage.villanova.edu/nancy.heck/Using Excel for NPV.doc

http://ardent.mit.edu/real_options/Real_opts_recitations/Recitaion_01.pdf

 

[BridgestoneGal]

Sorry about that Carrr. I totally missed the link you left there. Yes, it does give a good explanation.

Thanks!