Net Present Value (NPV) - Basics, Formula, Calculations in Excel (Step by Step)

In this video, we will talk about the Net Present Value (NPV), its meaning, formulas, calculations, and its uses.

00:00 - Introduction
01:05 - Future Value Concept
05:11 - Present Value Concept
08:47 - NPV - Net Present Value of Project
12:31 - NPV Formula
13:50 - NPV Calculation in Excel
16:14 - NPV Graph Profile
22:36 - NPV Limitation

What is NPV?
Net Present Value is primarily used to assess a project's profitability and is calculated as the difference between the present value of cash inflows and the present value of cash outflows over the project's time period.

Formula for NPV = NPVt=1 to T = ∑Xt / [(1+R) t – X0]

Two parts of NPV:
1. Cash Inflows from Investment
2. Cost of Investments in the project

Uses of NPV:
1. It compares both cash inflow and outflow
2. It offers a conclusive decision
3. Very easy to calculate

#wallstreetmojo, #NPV, #netpresentvalue

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[priyapillai]

Thank you so much for the video. I was struggling to understand all these terms, you made it a breeze. Very clear and concise. Thank you again for sharing your knowledge very skillfully.

[vineetdubey]

It was a wonderful video. It became very easy for non-finance people like me to understand the basic concepts through this video!!

[lindae-da]

Thank you Vaidya, a really clear and well-illustrated breakdown of NPV - currently studying MSc and there are so many poorly explained examples available. I will definitely refer to your videos in the future.

[beccaheller]

Thank you so much for this video. You make it so easy to understand and walking step-by-step through the Excel formulas is huge!

[shabeernaha]

🎉🎉 Very simple and crystal clear.Thanks Vaidya

[braysonfadhili]

Very powerful tutorial. Thank you and be blessed

[mathumalarganesan]

Great tutorial so far that I came a cross. I'm currently pursuing my MBA and your videos on Finance and Accounts are exceptional. Thank you.

[mohitsingha]

Thank you. Very well explained, including the fact that all the inputs are assumption based!

[lolingthornton]

Thank you for this video. I'm in the process of taking my Priniciples of Finance course in college, it's great to see these formulas in real time. I look forward to reviewing your videos on this subject going forward.

[afzaljeddahwala]

Hi Dheeraj,
Have read your articles and postings on the Web. Glad to see you on

[WorDouglas]

Hi I though this was well explained and great application. Request - Can you do a video that explaine Pay Back, NPV and IRR and at the end a comparision of the differences of all three investment tools PLEASE!

[samwai]

Good explanation of NPV. It's simple and easy to understand. Can you explain how to create graph using excel. I'm a beginner here.

[ellykappatos]

What about if the cashflows are considered a perpetuity and grow at a certain rate? Help!!

[flaviot]

Thank you very much very intersting and very good explanation; the only thing I couldn't catcht how do you design the GRAPH

[kanchandatta]

What are the determinants of discount rate? Is it cost of capital + expected rate of interest rate?

[rafiuahmed]

Thank you Dheeraj. Amazing explanation of NPV. If you have a new project that has a setup period, for instance, the project takes 2 years to set up before cash inflows can start. Do you indicate the cash inflows as zero for the first 2 years?

[haritsanat]

So present value is how much we need to invest now given our accepted rate of return

[TheElBudo]

In your example you use increasing cash flow, seeming to echo the years: 110 for year 1, 120 for year 2...This causes the PV values to also be regularly increasing all while using the $100 amount for clarity - but it's just a coincidence, no?

[haritsanat]

And NPV is, given our accepted rate of return will the project cash flow result positive flow or negative flow. If it is positive we accept it otherwise reject it

[haritsanat]

If NPV is zero we earn exactly the accepted rate of return