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In Depth Information

**Using the NPV Function to Determine Net Present Value**

Note

NPV requires the cash flows to occur at a regular rate. If you in-

stead have a series of projected cash flows on varying dates, you

this chapter.

NPV is similar to the PV function. The primary difference between PV and NPV

is that PV allows cash flows to begin either at the end or at the beginning of

the period. Unlike the variable NPV cash flow values, PV cash flows must

be constant throughout the investment.

NPV is also related to the IRR function. IRR is the rate for which NPV equals

zero: NPV(IRR(...), ...) = 0.

In
Figure 13.13
, the business will cost $50,000. The business will lose $5,000

in Year 1 and then generate $61,000 over the next 4 years. Based on these cash

flows, NPV is positive, which means that the investment will do better than a

CD at 2% interest.