Stig wrote:
i'm trying to reprogram the NPV function as in Excel but i can't seem
to understand how excel gets the result it is giving
for instance in the help i see this example:
annual discount rate: 10%
initial cost: 10000
return first year: 3000
return second year: 4200
return third year: 6800
Can someone explain me (step by step) how excel is giving me the result
of 1188.44?
i thought it was:
3000/1.1 + 4200/1.21 + 6800/1.331 but that gives me something else?

It is neither. The NPV of the cash flows is -10000 + 3000/(1+10%) +
4200/(1+10%)^2 + 6800*(1+10%)^3, which is 1307.29.

What you describe is the NPV of the cash flows without the initial
cost. If that is what you want, your formula is correct.

It is always a good practice to explain how you use the function you
are asking about. I presume you wrote NPV(10%,-10000,3000,4200,6800).
You should have written
-10000+NPV(10%,3000,4200,6800), which results in 1307.29, or omit
-10000 if you want the cash flow without the initial cost and you get
11307.29, as your discrete formula does.

The "problem" is clear if you read the NPV help text. Excel's NPV()
assumes that the first "value" parameter should be discounted. In
normal NPV usage, that means the first "value" parameter is CF1, not
CF0. ("CFn" is the n-th cash flow.) If you include
-10000 as the first "value" parameter, you are computing the cash flow
0 - 10000/(1+10%) + 3000/(1+10%)^2 + 4200/(1+10%)^3 + 6800*(1+10%)^4,
which is probably not what you want.