Net Present Value (NPV) - Basics, Formula, Calculations in Excel (Step by Step)
In this video, we will talk about the Net Present Value (NPV), its meaning, formulas, calculations, and its uses.
00:00 - Introduction
01:05 - Future Value Concept
05:11 - Present Value Concept
08:47 - NPV - Net Present Value of Project
12:31 - NPV Formula
13:50 - NPV Calculation in Excel
16:14 - NPV Graph Profile
22:36 - NPV Limitation
What is NPV?
Net Present Value is primarily used to assess a project's profitability and is calculated as the difference between the present value of cash inflows and the present value of cash outflows over the project's time period.
Formula for NPV = NPVt=1 to T = ∑Xt / [(1+R) t - X0]
Two parts of NPV:
1. Cash Inflows from Investment
2. Cost of Investments in the project
Uses of NPV:
1. It compares both cash inflow and outflow
2. It offers a conclusive decision
3. Very easy to calculate
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Пікірлер: 42
Thank you so much for the video. I was struggling to understand all these terms, you made it a breeze. Very clear and concise. Thank you again for sharing your knowledge very skillfully.
@wallstreetmojo
3 ай бұрын
Glad it was helpful!
Thank you so much for this video. You make it so easy to understand and walking step-by-step through the Excel formulas is huge!
@wallstreetmojo
8 ай бұрын
Glad we're on the same page, cheers!
Hi I though this was well explained and great application. Request - Can you do a video that explaine Pay Back, NPV and IRR and at the end a comparision of the differences of all three investment tools PLEASE!
Thank you Vaidya, a really clear and well-illustrated breakdown of NPV - currently studying MSc and there are so many poorly explained examples available. I will definitely refer to your videos in the future.
@wallstreetmojo
4 ай бұрын
Your comment made our day, thank you!
Hi Dheeraj, Have read your articles and postings on the Web. Glad to see you on KZread......!!
🎉🎉 Very simple and crystal clear.Thanks Vaidya
@wallstreetmojo
11 ай бұрын
Glad you liked it
Good explanation of npv sir
Great tutorial so far that I came a cross. I'm currently pursuing my MBA and your videos on Finance and Accounts are exceptional. Thank you.
@wallstreetmojo
9 ай бұрын
Your comment made our day, thank you!
Thank you. Very well explained, including the fact that all the inputs are assumption based!
@wallstreetmojo
10 ай бұрын
You're very welcome!
Very useful, explained like a Pro.
@wallstreetmojo
Ай бұрын
🎁Check out our Free and Paid courses at www.wallstreetmojo.com/all-courses/
Very powerful tutorial. Thank you and be blessed
@wallstreetmojo
8 ай бұрын
Thanks for sharing your perspective!
Thank you for this video. I'm in the process of taking my Priniciples of Finance course in college, it's great to see these formulas in real time. I look forward to reviewing your videos on this subject going forward.
@wallstreetmojo
11 ай бұрын
Appreciate your feedback, more content coming soon!
you are incredible
Good explanation of NPV. It's simple and easy to understand. Can you explain how to create graph using excel. I'm a beginner here.
fantastically described
@wallstreetmojo
Ай бұрын
🎁Check out our Free and Paid courses at www.wallstreetmojo.com/all-courses/
Thanks a lot for this useful video
@wallstreetmojo
11 ай бұрын
Thanks for watching, glad you liked it!
Thank you very much very intersting and very good explanation; the only thing I couldn't catcht how do you design the GRAPH
Thank you Dheeraj. Amazing explanation of NPV. If you have a new project that has a setup period, for instance, the project takes 2 years to set up before cash inflows can start. Do you indicate the cash inflows as zero for the first 2 years?
@wallstreetmojo
2 жыл бұрын
Yes, that's correct Rafiu!
And NPV is, given our accepted rate of return will the project cash flow result positive flow or negative flow. If it is positive we accept it otherwise reject it
Thanks a lot😊
@wallstreetmojo
Ай бұрын
🎁Check out our Free and Paid courses at www.wallstreetmojo.com/all-courses/
What about if the cashflows are considered a perpetuity and grow at a certain rate? Help!!
So present value is how much we need to invest now given our accepted rate of return
What are the determinants of discount rate? Is it cost of capital + expected rate of interest rate?
In your example you use increasing cash flow, seeming to echo the years: 110 for year 1, 120 for year 2...This causes the PV values to also be regularly increasing all while using the $100 amount for clarity - but it's just a coincidence, no?
best
@wallstreetmojo
11 ай бұрын
Thanks for watching, glad you liked it!
If NPV is zero we earn exactly the accepted rate of return
beautiful.... on point crystal clear
@wallstreetmojo
9 ай бұрын
Thanks for sharing your perspective!