**What is it: **O **Net Present Value (NPV)** is a mathematical-financial formula used to calculate the present value of a series of future payments discounting a stipulated cost of capital cost. It exists, because, of course, the money we are going to receive in the future is not worth the same as money in the present tense.

This may seem a bit abstract, but it is not. It happens, just as there is Interest, because of the uncertainty of tomorrow. Money in the future is worth less, precisely because we are not sure we will receive it. Therefore, this calculation just makes this adjustment, discounting the future rates of future cash flow.

**Go back to:
**How to make a business plan?

How to make a financial plan?

**When To Use:** Normally, NPV calculation (also known as current net worth) is done in project return or company valuation analyzes (valuation). The most famous term for this type of study is economic viability with variations and economic-financial or technical-economic.

**How to calculate:** In this post, we will show you how to calculate the Net Present Value through Excel, but the mathematical calculation that actually occurs is as follows:

In which, FC means the cash flow of each period, the *I'm the *discount rate chosen and *j* = 1. So we are seeing it is each cash flow being divided by the high discount rate to its respective period, since the interest, in this case, is composed.

**Discount rate** the money this money would have in safe sources, central bank interest rates are often used (SELIC).

Now that we have seen the mathematical side, let's look at the practical side via Excel. To calculate the NPV, just have the free cash flow from your financial projection as in the example below:

In this case, the project had an initial investment of **R$ 20.000,00** and then generated **R$ 10.000,00** in the next five months. To calculate the NPV, in this case, just choose the cell in which you want to see the result and choose the NPV formula (NPV), select the cells of the desired cash flow and enter the discount rate (the rate must be in the same periodicity of the flow, ie daily, monthly, annual, etc.).

In this case, I put a 10% rate per month and got the **NPV: R $ 17.907,87**

**How to Interpret:** This result means that although there is a financial gain of R $ 30.000,00 (Total revenue minus investment), the present value of this future cash flow is worth **R$ 17.907,87**. Therefore, it would be worth to "buy" this business or project for any value below the NPV and, would not be worth, any amount above.

Was the importance of this analysis clear? Numbers can fool us! Calculate your project's NPV in minutes!

Evaluating the investment alternatives below, for a weighted average cost of capital of 15,6%

Initial investment R $ 200 R $ 210 R $ 190

Cash Flow of the Year 1 R $ 130 R $ 135 R $ 127

Cash Flow of the Year 2 R $ 130 R $ 135 R $ 127

Cash Flow of the Year 3 R $ 130 R $ 135 R $ 127

Cash Flow of the Year 4 R $ 130 R $ 135 R $ 127

Cash Flow of the Year 5 R $ 130 R $ 135 R $ 127

Given the information, mark the alternative that correctly presents the interpretation of the net present value (NPV)

1: The biggest NPV is the blue design

2: The VPL menhir is the green project

3: Only the blue project showed positive NPV

4: Both projects had negative NPV

5: The difference between the VL of the green and blue projects is R $ 6,53

Hi Robson,

Using our spreadsheet or an HP12C you can get that answer.

Considering an Initial Net Investment of R $ 10.000,00, and the following Cash Flow balances, Net Present Value or NPV - Net Present Value, also considering the following cash flows: year 1 = R $ 1.000,00; year 2 = R $ 2.000,00, year 3 = R $ 3.000,00, year 4 = R $ 4.000,00 and year 5 = R $ 5.000,00. Admit a TMA - Minimum Attractiveness Rate of 8% per year and the VUP - Project Lifetime of 5 years: What would be the value of the VAL?

Considering an Initial Net Investment of R $ 10.000,00, and the following Cash Flow balances, Net Present Value or NPV - Net Present Value, also considering the following cash flows: year 1 = R $ 1.000,00; year 2 = R $ 2.000,00, year 3 = R $ 3.000,00, year 4 = R $ 4.000,00 and year 5 = R $ 5.000,00. Admit a TMA - Minimum Attractiveness Rate of 8% per year and the VUP - Project Lifetime of 5 years: What would be the value of the VAL?

Can someone help me ... I don't know if I calculated correctly and my life depends on this calculation there. I am in doubt if this dividend value should be used in the calculation.

1 Issue: According to the cash flow shown below, considering a discount rate of 10% per annum:

Year 1 Year 2 Year 3 Year 4 Year 5

Dividends - - 30.000,00 30.000,00 30.000,00

Investment 10.000,00 10.000,00 - - -

Fluxo de caixa -10.000,00 -10.000,00 30.000,00 30.000,00 30.000,00

a) Calculate the NPV of the project; (3 points)

Period (J) Cash Flow NPV Calculation Updated Cash Flow

Ano 1 -10.000,00 -10.000/(1+0,1)^0 -10.000,00

Ano 2 -10.000,00 -10.000/(1+0,1)^1 -9.090,90

Ano 3 30.000,00 30.000/(1+0,1)^2 24.793,00

Ano 4 30.000,00 30.000/(1+0,1)^3 22.539,44

Ano 5 30.000,00 30.000/(1+0,1)^4 20.490,40

67.822,84

-19.090,90 qualifying.

VPL 48.731,94

Answer: Calculated NPV equals R $ 48.731,94.

That's the answer for me. Can anyone check? I would be eternally grateful!

A hug!

Good night

Priscilla could send me by kindly in the email as did the calculation [email protected].

In Excel you can create flows in consecutive cells and use the same VPL function. The discount rate will be the TMA

Good evening.

As I do this calculation, I can not.

And I need to learn.

Consider the expansion project of the shoe manufacturing company, “SÓ SAPATOS”, which intends to open a new branch in the state of São Paulo. The initial investment of the project is R $ 200.000,00 and the cash flow was estimated below:

= 0 200,000,00

= 1 60,000,00

= 2 80,000,00

3 = 95,000,00

= 4 85,000,00

Considering a Minimum Attractiveness Rate (TMA) of 10% per year, what is the correct value of the NPV (Net Present Value) of this project.

Hi Angelo, the NPV is calculated in relation to the free cash flow, which in managerial practice is its final result (after IR and CSLL)

Good morning I apply the calculation based on profit after going and social contribution or about Ebitda?

grateful

angelo

Hi Monaliza, the formula of the NPV considers a certain range and is indifferent to the value that exists in it, so if the values change from 2 in 2 or from 2 to 4 and to 8, etc. is not relevant to formula

Hello, I would like to know how the NPV formula is considering cash flow with the Arithmetic Progression and Geometric Progression feature.

VPL above 0 indicates that the project is feasible

A project with a lifespan of 5 years was presented to the board of the company JOTA LTDA to replace an equipment whose initial investment will be R $ 10.000,00. The future cash flow estimates were organized in the following table, as well as the economic-financial feasibility analysis, considering a rate of 25% per year.

Year Cash Flow

1 $ 3.000,00

2 $ 4.000,00

3 $ 5.000,00

4 $ 5.000,00

5 $ 5.000,00

VPL R $ 1.206,40

IL 1,12

In this case the NPV being greater than 0 the project is viable, right?

What is your difficulty?

Hello, I'm trying to do a job and I'm having a bit of trouble.

In November, a company will invest R $ 100.000,00 in equipment to launch a beach sandal specifically to enjoy the summer in the months of December, January and February.

The sales forecast is for 10.000 pairs per month at a unit price of R $ 10,00 the pair;

Fixed costs are $ 20.000,000 per month and variable costs are $ 4,00 per pair;

At the end of the three months, the company will sell the equipment for R $ 30.000.00.

The TMA (Minimum Attractiveness Rate) of the company is 10% per month.

a) Analyze the IRR on the sales forecast.

b) Perform a Sensitivity Analysis of the sales forecast considering the following scenario: negative change in sales of 10%.

c) Perform a Sensitivity Analysis of the sales forecast considering the following scenario: negative change in sales of 20%.

You Adelcina you will need to use a present value formula of that value you have, in Excel is PV or VP depending on the language of use.

Wave

I thank you first of all, I have a question as to how cash flow is calculated, a simple example, for example want to make the investment for production and distribution of sweets in the national and international market of 837450 REAIS, as the PLV is calculated assuming that the rate is 10%.

Is cash flow equal to the result of the exercise?

Hi Valéria, our feasibility calculation spreadsheet will help you reach those values - https://luz.vc/planilhas-empresariais/planilha-de-estudo-de-viabilidade-economica

Hello… very good explanations. However, I need urgent help. Its responsible for a project in the marketing part. But I want and need to understand the financial part. Please help me.

They are 3 hotels. simultaneous construction in 1 year and six months. 19 million each, totaling 57 million. Net profit of 2.300.00,00 per year. Return on equity in 10 years. Invoicing estimated at R $ 513.892,50 per month. Profit Estimate of 35%. I need to calculate: NPV, VAUE, TIR.

THANK YOU.

VALÉRIA MARTINS

Hi Joabe, the discount rate varies according to your reality. Typically, a widely accepted value is to apply the SELIC rate as the default.

What is the correct discount rate to apply to VPL, 10%, 15%, 20% ????

Hi Aglais,

the calculation is always carried out in the same way, bringing the cash flow to present value. In the example you gave, this cash flow will consist of the revenues that this equipment gives you, less that operating cost. The additional annual revenue will depend on how you pay it. If it is month by month, it goes into the monthly cash flow, otherwise it will go in as a revenue in a specific month of the year. Already the value after years of use (and possible sale) would probably enter the final period. There is no right rule for this, I'm commenting only one possibility based on what you explained okay?

hi please could you answer me in case of NPV of equipment purchase how do I calculate the operating cost, additional annual revenue and value after years of use?

I've already done NPV but not with these values anymore…. thanks in advance!

Hi Ricardo, I believe that if you create a quarterly cash flow, modify the 3% am rate, for a quarterly rate and add in the fifth quarter a value of $ 1.000.000 will get you in your answer.

To discover an unknown, it is necessary to have other values, for example. To know the value of the tenth period you must know the NPV and the other values. Depending on the copmplexity a rule of 3 already solves, if not, you will need to do the NPV function "by hand" by adding the unknown and making the calculation to know its value.

As I calculate if for example in a period there is an unknown, how do I discover this unknown and the price in sight?

Chapisco owns a farm worth 2 million, but an engineer wants to buy it to build buildings in place. He proposes to pay 4 quarterly installments of 400 thousand and from here there 1 year, when the buildings have ready, deliver two apartments of 500 thousand each. If the minimum attractiveness rate is 3% am, does Chapisco accept the proposed sale?

The logic is this, you can bring the values up to the thirtieth year to present value and put the values of years 1, 2 and 3 to future value, so you will have the 4 year as the beacon of your VPL

I have a 30 year project and I want to calculate the NPV in year 4.

How should I consider the resources invested in previous years up to the year 4 ?.

Do I bring (capitalize) the 1, 2, and 3 values for year 4 and decapitalize year 30 through year 4?

Note: calculation carried out up to the year 7.

Eg:

Contributions made

year 1) -R $ 129.100

year 2) R $ 0

year 3) -R $ 170.750

year 4) -R $ 73.500

year 5) -R $ 39.200

year 6) -R $ 49.000

year 7) -R $ 83.300

Average Cost of Annual Capital Cost:

year 1) 112,91%;

year 2) 117,17%;

year 3) 112,79%

year 4) 110,23%

year 5) 111,51%

year 6) 111,16%

year 7) 110,53%

Resposta:

year 1) -R $ 195.685

year 2) R $ 0

year 3) -R $ 196.815

year 4) -R $ 73.500

year 5) -R $ 32.960

year 6) -R $ 35.150

year 7) -R $ 51.781

NPV = -R $ 585.892

Legal Guilherme, thanks for the clarification. Big hug

Hello,

Thank you Rafael, I understand!

Complementing, the NPV and NPC are similar. I got this information after writing this post.

The only difference is that the NPC considers the COST. In this way, a positive result (ie> 0) means that there are costs. And a negative value (that is, <0) means that there is revenue.

Thank you for your attention.

Hi Guilherme, let's break it down:

The calculation of the NPV already takes into account the investment made. So the comparison of the NPV is not with the investment but with the value zero (0).

That is, because R $ 17.908 is greater than zero, this feasibility study indicates that it is worth investing in the project.

So the consideration that the investment is greater than the NPV makes the project feasible NOT OK ok?

About the variable, the NPV translation is NPV (Net Present Value), so the NPC you refer to means something else. Doing a quick search seemed to me to have to do with the Present Value indicator (PV or VP), but I'm not sure

Good afternoon, Rafael. You commented that:

1) The deal is viable if NPV> 0.

2) In the post you inform that "it would be worth" to buy "this business, or project, for any amount below the NPV and, it would not be worth any amount above."

The NPV value was: 17.907,00

The value of the investment was: 20.000,00

Therefore, the investment is greater than the NPV. Is the project viable? Is this consideration right?

Taking advantage, can you tell me if the financial variable NPC (Net Present Cost) is the same thing as the NPV?

Considering a continuous cash flow of R $ 10.000,00 per month, cost of capital of 8%, what would be the NPV knowing that the investment was R $ 360.000,00?

Excellent Grandson, we were happy. If you need any help, just talk.

Very cool, I understood perfectly, quite elucidative besides fixing the formula in the head.

Hi Newton, the rule is that if the NPV is greater than 0, it means that the deal is viable. That is, 17.907> 0, so the deal is viable.

In the example if the found VPL was 17907,87 and the initial investment was 20000 does it mean that the business would be impractical with these values?

Hi Mariana, I'm no expert for this type of investment calculation, so I would not know what the market standard is, but speaking of feasibility study, it seems to me to make sense to use the updated Selic for a specific market inflation factor in which you is investing.

Hi Rafael! Thank you very much for your response.

In my case, I would be making a one-time investment without considering the cash flows. I want to buy an investment made today and an investment made 15 years hence. But in this case I am not including any flow in the meantime, really just wanted to compare the present value of the future investment using the formula P = F / (1 + i) ^ t. In this case F the future investment (P multiplied by the INCC factor), was the Selic rate and time of 15 years. In the case the question would be whether it makes sense to use the Selic rate compared to the future value updated by the INCC or if it should use some other bank interest rate. The investment would be a work of urban infrastructure, so it would not have a cash flow.

Thanks again for your attention!

Hugs,

Mariana

Hi, Mariana, how are you?

if the calculation you want to make is that of the same NPV, your entire projection of future cash flows will be discounted by a single rate. This rate can be derived from any indicator that makes sense for your type of business and, in my opinion, making a composition taking into account the SELIC rate and the average INCC of the last few years seems to me to make sense.

Hello

I have a question regarding a future investment in construction

civil. To know the value of future investment, you would need to update the

with the INCC (say that it would use an average value of the last years of

8%) and to know the present value of this future investment I would use

this value was found by adding the INCC for the desired period and

Selic rate.

Is this account correct?

Thanks for listening.

Hugs,

Mariana

Hi Leo, using an HP12C is easy,

In this type of exercise you always have to think about the variables you use. For example, in this case:

Present value = 2x

Future value = x

Plots = 12 (in months)

and you are looking for the average monthly interest rate applied

Playing in the calculator you find the result

hello, good evening, I would like to take a doubt

8- (1,0 en) Rodrigo applied his savings in shares of a certain company, but after 1 year his initial capital was cut in half. What was the average monthly rate applied to Rodrigo's investment. If you can respond, I'm lost, thank you.

Hello,

It's OK? We have a ready-made spreadsheet that can help you with this kind of analysis. Follow the link: https://luz.vc/planilhas-empresariais/planilha-de-estudo-de-viabilidade-economica

Hugs!

I have two projects: The first project with investments of the order of R $ 200 million and cash flows projected for a planning horizon of 5 years in the values of R $ 60; R $ 65; R $ 70; R $ 75 and R $ 80 million per year. The second project also has investments of R $ 200 million and cash flows projected for a horizon of 4 years in the amounts R $ 70; R $ 80; R $ 85 and R $ 90 million per year. Which project would you select? Consider a capital opportunity cost of 12% for the company.

1) Calculate the NPV of the two projects.

2) Calculate the IRR of the two projects.

barbosadejesu.wordpress.com/

Comments and Solution:

Total revenue for the first year: R $ 13.000,00 (Sales) x R $ 51,00 (Unit Price) = R $ 663.000,00

Total revenue for the second year: R $ 14.500,00 (Sales) x R $ 54,50 (Unit Price) = R $ 790.250,00

Total Revenue for the third year: R $ 14.000,00 (Sales) x R $ 55,00 (Unit Price) = R $ 770.000,00

60% First Year Cost: $ 663.000,00 x 0,6 = $ 397.800,00

60% of Year Cost: R $ 790.250,00 x 0,6 = R $ 474.150,00

60% of Third Year Cost: $ 770.000,00 x 0,6 = $ 462.000,00

Operating Expenses for the first year already included Depreciation: R $ 80.000,00

Second Year Operating Expense already included in Depreciation: R $ 80.000,00

Third Year Operating Expense already included Depreciation: R $ 90.000,00

First Year Gross Profit: R $ 663.000,00 - R $ 397.800,00 = R $ 265.200,00

Second Year Gross Profit: R $ 790.250,00 - R $ 474.150,00 = R $ 316.100,00

Third-Quarter Gross Profit: R $ 770.000,00 - R $ 462.000,00 = R $ 308.000,00

Net income for the first year: R $ 265.200,00 - R $ 80,000,00 (depreciation) = R $ 185.200,00 -> R $ 185.200,00 x 0,34 = R $ 62.968,00 -> Soon… R $ 85.200,00 , 62.968,00 - R $ 122.232,00 = R $ 1 (Net Income for year XNUMX)

Net income for the second year: R $ 316.100,00 - R $ 80,000,00 (depreciation) = R $ 236.100,00 -> R $ 236.100,00 x 0,34 = R $ 80.274,00 -> Soon… R $ 236.100,00 , 80.274,00 - R $ 155.826,00 = R $ 2 (Net Income for year XNUMX)

Net income for the third year: R $ 308.000,00 - R $ 90,000,00 (depreciation) = R $ 218.000,00 -> R $ 218.000,00 x 0,34 = R $ 74.120,00 -> Soon ... R $ 218.000,00 , 74.120,00 - R $ 143.880,00 = R $ 3 (Net Income for year XNUMX)

Now we can calculate the net present value:

Considering the cost of capital equal to 11,5% per year, we have:

VPL = {[122.232 / (1 + 0,115) ^ 1] + [155826 / (1 + 0,115) ^ 2] + [143880 / (1 + 0,115) ^ 3]} - 250000

VPL = {[122.232 / (1,115) ^ 1] + [155826] (1,115) ^ 2] + [143880 / (1,115) ^ 3]} - 250000

VPL = {[122.232 / 1,115] + [155826 / 1,243225] + [143880 / 1,386195875]} - 250000

VPL = {109625,1121 + 125340,1436 + 103794,8551} - 250000

VPL = 338760,1108 - 250000

VPL = 88.760,1108

£ 88.760,00.

Therefore, the correct alternative is the letter E.

Hi Norton,

It's OK? We have an economically feasible spreadsheet that can help you do exactly that sort of calculation. See this link: https://prototype.luz.vc/planilhas-empresariais/planilha-de-estudo-de-viabilidade-economica

Hugs!

Can you help me answer? A company has an investment project that will require R $ 250.000,00 in initial investments, to be recovered in the next 3 years. The product line you intend to sell will have average unit prices of R $ 51,00 in year 1, R $ 54,50 in year 2 and R $ 55,00 in year 3. It is expected to sell 13.000, 14.500 and 14.000 units, respectively, in years 1, 2 and 3. The cost of sales is variable and represents 60% of sales revenue. Operating expenses, including depreciation expense, are fixed during the first two years, in the amount of R $ 80.000 per year, and R $ 90.000 in the following year. All initial investment will be amortized over three years. Considering a tax rate of 34% on profit and a cost of capital of 11,5% per year, its NPV is approximately…

I also have Joana's doubt, because in this case I only see cash outflow…

Hi Joan,

You have to use this data to create a cash flow with monthly entries and exits. Only after that you will be able to use the monthly result to do the IRR and NPV calculations, okay?

Hugs!

I'm breaking my head trying to do this exercise and I can not figure out how to apply the NPV:

REAL ESTATE OVERSEAS A COMMERCIAL LAND FOR R $ 50.000,00 INPUT + 8 QUARTERLY R $ 40.000,00 INCOME WITH 1,5% AM CORRECTION

REAL ESTATE B

OFFERS A COMMERCIAL LAND BY R $ 30.000,00 INPUT + 9 BINES R $ 36.000,00 BINES WITH 1,03% AM CORRECTION

how do I resolve it at equivalent rates and apply the Internal Rate of Return (IRR) and the Net Present Value (NPV)?

Hi Fabio,

It's OK? Sorry, but I believe you are using a different method than the one presented here in the post. I do not know if it makes sense, but I think this worksheet can help you organize this data: https://luz.vc/planilhas-empresariais/planilha-de-estudo-de-viabilidade-economica

Hugs!

what is the NPV of the investment, with opportunity cost of 3,50%

Initial investment - 150

Monthly box entries - 18

Reinvestment in the 7th month - 40

residual value - 25

useful life - 12 months

Hi Fabiano,

It's OK? I did not exactly understand your question. Could you explain more to me what you are looking for?

Hugs!

Good afternoon, could you give me some examples of sources of income for a fictitious company?

André, in the example we gave in the text, -R $ 20.000 is the initial investment and not the first year's flow, so it should be "out" of the formula like this: "= B3 + NPV (B2; B4; B5; B6; B7; B8) ”

Considering in my example that:

- B3 = -20.000 is the investment in the zero period

- B2 = 0,1, that is, the rate of 10%

- B4 = B5 = B6 = B7 = B8 = 10.000 flows in periods 1 to 5.

Dear Felipo, making the resolution for excel by the formula "= NPV (B2; B3; B4; B5; B6; B7; B8)" the resulting NPV is R $ 16.279,88 very different from the result presented in the above exercise. Could you kindly check if the formula I'm using is inconsistent?

So Sandro, I'm not very sure at that point, because it will depend on the exercise itself. I would particularly do the NPV calculation without depreciating (because depreciation does not imply a financial cost of cash flow).

If I won 200.000 I did not lose 40.000 because my machine depreciated, you know? You would leave to subtract the value of a machine at the end of the 100% depreciation period,

But just to do the counterpoint, if the exercise put those values there is probably because you want them to use them in the calculations.

I hope I helped

But it is correct to divide each year by 1st year 20%, 2nd year 32%, 3rd year 19%, 4th year 15% and 6th year 14% ... And how do I do with the 34% IR ...

But it is correct to divide each year by 1st year 20%, 2nd year 32%, 3rd year 19%, 4th year 15% and 6th year 14% ... And how do I do with the 34% IR ...

You compare them and subtract one from the other. So you will see which investment is best and you will find the difference between them

In the first year I do: Current machine 210.000% 1,20 = 175.000 and New machine 315.000% 1,20 = 262.500… Taking the percentage of each year… And when I find the two values what do I do…

okkk

Hi Sandro,

unfortunately I do not have much time to stop and do this exercise for you right now, and as you are in a hurry, I think you will have to finish it yourself.

It seems to me that if you calculate the NPV of the two machines you will find a difference of values which will be the incremental cash flow.

I assume you know how to use HP12C. To arrive at the result I would use the IR as the discount rate, the value of the machine as investment and the other values as the cash flow. If you can help more, just tell me.

I did not quite understand what you meant by income tax,

anyway, if the tax is 13%, it will be 0,13. If you want to add an integer to some specific goal, would 1,13 and not 1,013 be ok?

I would very much like you to help me solve… I am beating my head and I have to present tomorrow night !!! I appreciate the strength !!!

divide the income tax by 1,13 or 1,013…. And I divide all the values ...

Since it’s 13%…

Hi Sandro, I find quite the statement of a book exercise. Anyway, just use the HP12C or a Feasibility Study spreadsheet like ours to get at that result.

Anyway, the project's NPV is -22.981, meaning it's not worth investing in this project.

A company is considering an investment with annual cash flows forecast for the next 5 years of R $ 18.888, R $ 12.700, R $ 9.500, R $ 6.000 and R $ 5.700, respectively for five years. If the project's discount rate was 13% and the initial investment was R $ 63.000, through NPV and IL, you would recommend this project… Explain, Justify and exemplify your answer…

Hi Wanderson,

oj is equal to 1 and it exists in the formula so that exponentiation is never 0. So in the first period we have only the j (which is equal to 1) and the second 2, and so on. Understood?

I would like to do the manual calculation, but I did not understand what ignores that “j” and what value I attach to it if you can explain it to me

Hi Diego,

thanks for the feedback, we had actually made some miscalculation when we created the post for the first time. I already checked and corrected!

regarding your question, i would do it as follows, i would take the investment value as month1 and the negative operational flow as month 2 ok? In this case, considering all the other variables (5 months with a positive flow of 10.000, and a 10% rate), the result of your NPV would be - 15.370,79 by my accounts here.

I hope I have helped and thank you for the feedback!

Good evening, I would like to congratulate the Blog content and ask for a correction as to the value of the VPL indicator, the correct value for the example shown above is 17.908, considering 20.000 for investment. Formula in Excel should be: = VPL (10%; Month2: Month6) + Month1.

My question is: If in the month 1 I had the value of -20.000, but considering that only 10.000 was investment and the other values would be referring to the operational flow, should I make the same formula or just add the value of the investment?

Hi Katia,

I did the calculations using our Feasibility Study worksheet and got 2 results possible. In the first disregarding the depreciation and the result of the NPV was of 34.086, which is a positive result indicating that the investment is worth

in the second, I considered that the machine life span was 5 years and that's why in the fifth year you would spend 100.000 on buying machines, making your flow be negative on 60.000 that year okay? the NPV result in this case was -15.631, indicating a dubious investment.

As I do not believe these are the only variables, I recommend you to know our worksheet (http://luz.vc/ferramentas/planilhas-prontas/planilha-de-estudo-de-viabilidade-economica/) to make optimistic and pessimistic scenarios, to understand possible variations in these values designed to understand the general scenario,

Hugs

Please urgently need me to help calculate the NPV with the following data:

Value of the investment: 100.000,00

Estimated useful time: 5 years

Annual Depreciation: 20.000,00

Operating Income per Year (Cash Flow): 40.000,00

Expected return rate 15%

I would like to know how to calculate exponential and cumulative pro rata temporis - Interest of 6,5% per year in 36 installments of principal amount - R $ 1.000.000,00?

Good afternoon, Valdemiro. The table is wrong. Where 1 is, it would be 0 month. However, even if it were 1 month, it would just treat as the cash flow of the 1 month and bring the present value. The value of the 0 month would be 0.

the initial investment can not be considered the year 1 with the value of 20.000 ai but the year 0 that has not been shown a value, how will we know if the project or the invested value is acceptable?

That's correct, according to Filippo

Priscilla, I looked at the table and hit the text. In this case, you're right.

Filippo, I did it this way because I considered the R $ 20.000,00 as an investment, due to information: “In this case, the project had an initial investment of R $ 20.000,00 and then generated R $ 10.000,00 of profit in the next five months.” So it is not considered an investment? Is investment just referred to as “month 0”?

Antonio Jr, would you be correct, if the amount of R $ 20.000 was denoted as an investment or if it was in “month 0”, but as it is in month 1, it is understood as a future cash flow and it should be brought to value gift.

Priscilla, would you be correct, if the amount of R $ 20.000 was denoted as an investment or if it was in “month 0”, but as it is in month 1, it is understood as a future cash flow and it should be brought to present value .

You're correct, let's wait for the explanation.

Your friend The value you entered is wrong, the formula NPV = (Rate, positive flow of returns) + Initial investment (R $ 17.907,87)

Thank you, John!

Fantastic explanation! Congratulations!

Hello .. Good night! I would like to ask a question: when placing the investment value in the NPV formula, does it not understand that the value refers to the cash flow of the first period and not an investment? I imagined it as follows: NPV of 5 months = R $ 37.907,87 minus the investment of R $ 20.000,00 = NPV of R $ 17.907,87. I would like to understand, because I was confused… lol. Thank you so much !!!

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Hi Peter,

It is included, yes. Of course, this is the most classical way of calculating NPV with the first flow being negative.

Hugs!

In the excell formula is included the 10% rate in the first negative month?

Thank you, Fabrizio!

Very good. Thanks for the great article!