Excel Financtial Functions

Question

You are considering making an investment. The initial payment for the investment is $1000. In the second

year, you will receive $3500, in the third year you will have to pay $2000, in the fourth year you will

receive $6000, and in the fifth year you have to pay $6500. The rate of return is 5%. What is the present

value of this investment? Use the NPV function for this question.

Answer 1

Thanks for posting this question, Jackson F. Net present value is a very useful function in accounting.

The NPV function requires a minimum of 2 arguments. The first is your rate, which in your case is 5%. The remaining arguments would be your cash flow from your investment, with the exception of your initial investment. After calculating that, you will add in the initial investment.

Your function will look something like this:

=NPV(rate, year2, year3, year4, year5) + year1

Your investment should be a few hundred dollars in the black.

Reminder: When using this function, don't forget to use negative on the years that you have to pay out.