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Excel has a formula to calculate Net Present Value. Explain how the formula is used to...

Excel has a formula to calculate Net Present Value. Explain how the formula is used to perform the calculation. Specifically, identify each component of the formula and explain its meaning.

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Answer #1

The NPV function calculates the net present value of an investment by using a discount rate and a series of future payments. The syntax of the function is as follows:

NPV(rate,value1,[value2],...)

The arguments of the function are as follows:

Rate: The rate of discount over the length of the period.

Value1, value2, ... : Value1 is required, subsequent values are optional.

The below screenshot shows the NPV function in excel:

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