Assuming equivalent discount rates, the NPV on a sum of cash flow from a set of assets has to equal the sum of the NPV’s right? Can’t you say: NPV(1)+NPV(2)+…+NPV(n)= Sigma(CF(1)/(1+r)^i)+Sigma(CF(2)/(1+r)^i)+…+Sigma(CF(n)/(1+r)^i)= Sigma((CF(1)+…+CF(n))/(1+r)^i))= NPV(CF(1)+…+CF(n)) Is there something I’m missing? excel is telling me otherwise…
TI BAII PLUS
Sounds right. How is excel telling you otherwise?
What is sigma here? Is it a standard deviation of something?
bchadwick Wrote: ------------------------------------------------------- > What is sigma here? Is it a standard deviation of > something? Summation “Sounds right. How is excel telling you otherwise?” To check my work, I built a sheet that has monthly cashflows going out a while, and built a sum column. The NPV’s of the component column don’t add up to the NPV’s of the sum. I’d thik it may be the formula, but I’m using the same formula in both situations…
A guess - it may be due to the timing of the cashflows being one off?
Are you sure you’re using the same discount rates every time? Sometimes when you copy columns, you may get different rates if you don’t watch your cells carefully.
Here’s the answer: http://www.techonthenet.com/excel/formulas/npv.php Kind of scary actually given how much I blindly trust excel… " Note: Microsoft Excel’s Npv function does not account for the intial cash outlay, or may account for it improperly depending on the version of Excel. However, there is a workaround. This workaround requires that you NOT include the initial investment in the future payments/income for the investment (ie: value1, value2, … value_n), but instead, you need to subtract from the result of the Npv function, the amount of the initial investment. The workaround formula is also different depending on whether the cash flows occur at the end of the period (EOP) or at the beginning of the period (BOP). If the cash flows occur at the end of the period (EOP), you would use the following formula: =Npv( discount_rate, value1, value2, … value_n ) - Initial Investment If the cash flows occur at the beginning of the period (BOP), you would use the following formula: =Npv( discount_rate, value2, … value_n ) - Initial Investment + value1 Acknowledgements: A special thanks to Martin P. for bringing this to our attention. Applies To: Excel 2007, Excel 2003, Excel XP, Excel 2000 For example: Let’s take a look at a few examples: This first example returns a net present value of $3,457.19. It assumes that you pay $7,500 as an initial investment . You then receive the following income for the first four years (EOP): $3,000, $5,000, $1,200, and $4,000. An annual discount rate of 8% is used. =Npv(8%, 3000, 5000, 1200, 4000) - 7500 This next example returns a net present value of $8,660.77. It assumes that you pay $10,000 as an initial investment. You then receive the following income for the first three years (BOP): $3,400, $6,500, and $10,000. An annual discount rate of 5% is used. =Npv(5%, 6500, 10000) - 10000 + 3400"