How to calculate NPV or Net Present Value in Excel
NPV or the Net Present Value can help decide whether a company should pursue a project or discard it. The function gives us a net value of the total discounted revenues minus the total discounted costs. By a discounted revenue we mean a revenue that takes into account an earning that we could have got by pursuing another project or keeping the money as fixed deposit in the bank. Also we give importance to the time value of money in the NPV calculations. All our revenues and costs that we earn or incur in the future will be converted back to revenues and costs at today’s value of our money by using discounted values. The result of our calculations is therefore a value that gives the amount of money we’ll earn at today’s currency value. Also if the calculation gives us a negative value we can assume that the project is not viable. In our example, we have shown how to deal with the straight line depreciation method and taxation.
Before you watch the video we have also given a screen shot of the whole project.
The values are all in Indian Rupees.