Microsoft Office Tutorials and References
In Depth Information
Chapter 12: Discounting and Depreciation Formulas
Figure 12-3: The NPV function can be used to determine the initial investment required.
If the potential snowplow owner can buy the snowplow for $180,119.70, it will result in a 10% rate
of return — assuming that the cash flow projections are accurate, of course. The formula adds the
value in B7 to the end to be consistent with the formula from the previous example. Obviously,
because the initial cash flow is zero, adding B7 is superfluous.
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 previous 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 immediately.
Figure 12-4: Some NPV calculations include an initial cash inflow.