Microsoft Office Tutorials and References

In Depth Information

The formula adds the value in B6 to the end to be consistent with the formula from the

previous example. Obviously, because the initial cash flow is zero, adding B6 is super-

fluous.

Initial cash inflow

Figure 12-4 shows an example in which the initial cash flow (the Time 0 cash flow) is an inflow. Like the previ-

ous example, this calculation returns the amount of an initial investment that will be necessary to achieve the

desired rate of return. In this example, however, the initial investment entitles you to receive the first inflow im-

mediately.

The NPV calculation is in cell B15, which contains the following formula:

=NPV(B3,B7:B13)+B6

This example might seem unusual, but it is common in real estate situations in which rent is paid in advance.

This calculation indicates that you can pay $197,292.96 for a rental property that pays back the future cash

flows in rent. The first year's rent, however, is due immediately. Therefore, the first year's rent is shown at Time

0.

Figure 12-4:
Some NPV calculations include an initial cash inflow.

Terminal values