NPV formula

[Guest]

The NPV (Net Present Value) formula in Excel does not calculate the correct
number. Instead it calculates PV (present value). The difference is just that
NPV is equal to PV-initial costs. Ask the finance guys in your department -
they'll know what I'm talking about.

It would be nice to see an update to Excel with this shortcoming fixed.

 

[Ron Rosenfeld]

The NPV (Net Present Value) formula in Excel does not calculate the correct
number. Instead it calculates PV (present value). The difference is just that
NPV is equal to PV-initial costs. Ask the finance guys in your department -
they'll know what I'm talking about.

It would be nice to see an update to Excel with this shortcoming fixed.

I don't have any "finance guys" in my department.

But I wonder if you are using Excel's NPV the way it is meant to be used and
documented in HELP.

If your first cash flow (i.e. your initial costs) occurs at the beginning of
the first period, the first value must be added to the NPV result, not included
in the values arguments.

In any event, if you want to suggest a change to Microsoft in Excel, this is
not the forum in which to do so. You should make your suggestion to Microsoft
at http://register.microsoft.com/mswish/suggestion.asp


--ron

 

[Harlan Grove]

The NPV (Net Present Value) formula in Excel does not calculate the
correct number. Instead it calculates PV (present value). The difference
is just that NPV is equal to PV-initial costs. Ask the finance guys in
your department - they'll know what I'm talking about.

It would be nice to see an update to Excel with this shortcoming fixed.

If you mean by this the venerable 'feature' by which Excel discounts the
first cashflow one period rather than leaving it undiscounted/nominal, this
is due to compatibility with other spreadsheets that predated Excel. This
particular quirk can be traced at least as far back as VisiCalc. Lotus 123
copied this VisiCalc quirk because that's what spreadsheet users at the time
expected, and Microsoft Excel also copied it for the same reason.

It'd break many existing workbooks to 'fix', and Microsoft correctly is
ensuring backward compatibility rather than changing functionality for the
rather sterile and unproductive goal of conformity with finance texts.

Besides, as any long-time Excel (or any spreadsheet) user knows, if you want
the finance text NPV, use either

=CF_0+NPV(r,CF_1,...,CF_N)

or

=NPV(r,CF_0,...,CF_N)*(1+r)