Calculating NPV and IRR in Excel: A Step-by-Step Tutorial

We walk through the process of how calculating net present value & IRR to analyze three example investments. Also included is a downloadable template of the model.

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In this video, we analyze three very different potential investments to calculate the net present value of the investment as well as the internal rate of return. We then use the NPV and IRR to discuss whether or not we think this is an attractive investment for each of our example companies.

Conceptually, we the relationship between net present value & IRR and how to calculate them to understand the risk-return profile of an investment. The video also includes a discussion about the discount rate or WACC (weighted average cost of capital) and what it means.

Also included is a link (in the "resources & links" section) where you can download the NPV & IRR Excel template for free.

The net present value in IRR frameworks enables us to analyze the riskiness of investments and compare that to the potential reward that we think is possible.

The future is always going to be uncertain, but in certain industries and with certain business models the future is more or less uncertain. The concept of uncertainty is the same thing as the concept of risk. In our model risk is reflected in the discount rate or WACC.

In the free market system, you need to take higher risks if you want to earn higher returns. So you need to calculate metrics like net present value and internal rate of return so that you can make sure that the risks are not higher than the potential returns.

NPV and IRR calculations are some of the most common calculations in venture capital, private equity, investment banking, etc, because they are extremely useful in analyzing opportunities.

I hope that you can now feel confident with the IRR & NPV formulas in Excel. If you have questions (I'm sure you do) - please leave comments below and I'll try to help. Cheers!

#netpresentvalue #npv #irr #investing

[leavesproduction]

Thank you for your material, I have watched over dozens of YouTube channels regatrding finance and working in Excel, and your tutorials are the most easy to understand and to follow. No extra time spend, will stay with your channel. Thank you

[zeenatamber]

Hi...your vedio was amazing...kindly also make a vedio about calculation of discount rate(WACC)

[Rafiqazizada]

Thank you for such a great video. Plz keep up the good work.

[Rocinante]

Amazing explanation mate, quite in depth. thank you so so so much!

[Oveea-ie]

Excellent video, Eric! I'm a CPA and I love the way that you have explained an often convoluted concept so lucidly. Thanks! :)

[abdelrahmanalzubaidi]

Thank you for the great video and for the great explanation !

[macsocalixte]

Thank you for the great insights you provide about calculating NPV & IRR. It is very useful!

[almagallardo]

Hello thank you for the video, it is really helpful! Can you please let me know which is the formula of IRR without excel? How can it be calculated? Thanks :)

[seshadripadmanabhan]

I would like to calculate IRR for monthly flows, and verify the same with Monthly flow NPPV

[InuCon]

This was extremely helpful… I got stuck on a project and this video pulled me right out. Thanks for sharing!!

[_tacotempura]

Thanks for the videos, Eric! Do you think you could shed some additional light on how to come to the 'guess' percentage for IRR and the WACC?

Thanks!

[bocobox]

Awesome video. By the way, wondering how I can approach WACC and IRR(guessing rate) depending on business type.

[SalmanWarisKhan]

Hi Eric can you please upload more videos about the topics used in the excel regarding start ups. Thank you so much love your videos

[businesstrash]

I am getting different value on manual vs formula!!

[corello]

Hi Eric, great video! One question: For the PE- backed Biz, are the cash flows in 2024-2029 all dividends for the private equity firm and then 2030 is the sale price they get? Curious why they would get cash flows during those years but the pre-rev startup and public tech company don't. Thanks!

[youssramouhssine]

Great video i love the way you explain things ❤️ keep going 👍👏
I hope do a video for online business on how to record & track monthly or daily sales & expenses

[keyspanmusic]

Super helpful video! Also if I understood correctly, this helped me to make sense of the different approaches which might typically be taken by a private equity investor (first example - lower risk, biz currently making solid cash flow, with opportunity to perhaps optimize the operations post purchase) vs. a venture capital investor (third example, biz is not yet stood up or early stage cash flow negative, unproven model, but the one of these that hits out of a VC portfolio of 20+ of them pays for all the rest of the misses many times over)!

[hhhh-betv]

Great video! I'd really appreciate if you could explain this to me? Why is it that sometimes the NPV includes the actual so (3, 000, 000) but sometimes like in this case it is not included in the NPV

[sorcererstone]

Just discovered this very clear & explained walk through to calculate NPV & IRR.
Have a newbie question. In your video, the manual calculated NPV and the excel built in NPV formula both came out to be the same. I was told there is something wrong in Microsoft interpretation of NPV.
Is this an old problem in previous Excel releases and newer versions of Excel do not have this issue?
I am a bit surprise your manual calculated NPV and the built in NPV result are the same. But I understand your calculation method.

[ahmadabdullahakbar]

Hi Eric, how you get the number of Cashflow 2024 - 2030?