On Thu, 9 Jul 2009 03:02:01 -0700 (PDT), Gazza wrote:

Hi,

I need a little help with the NPV function if possible.

The help for the NPV function states that the first argument in the
formula is the rate, that's fine. The second argument is the initial
cost of investment one year from today and that the next argument is
the return from the first year. Is the first year in the same time
period as the year which includes the initial cost or is the first
year effectively the end of the second year assuming that the costs
were all incurred in the first year and the second year is when you
start making money (termed as first year in the help)???

For example what happens if I have this scenario:-

Year 1 - Cost £10000, return £5000
Year 2 - Return £10000
Year 3 - Return £10000
Year 4 - Return £10000

Many thanks in advance

Gary


Perhaps reading the description, rather than looking at the example, would be
more illuminating.

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

Value1, value2, ... are 1 to 254 arguments representing the payments and
income.

The NPV investment begins one period before the date of the value1 cash flow
and ends with the last cash flow in the list. The NPV calculation is based on
future cash flows. If your first cash flow occurs at the beginning of the first
period, the first value must be added to the NPV result, not included in the
values arguments. For more information, see the examples below.
-----------------------------------

So set up your Values while thinking in terms of "cash flow" and "periods"
rather than "investment", "return", and "years".

If money is going "away" from you (i.e. into an account, or investment), enter
it as a negative value. If money is coming "towards" you (i.e. as a return on
your investment, rental income, interest being paid, etc) then enter the value
as a positive number.

Also note that if your first cash flow occurs at the BEGINNING of the first
period, you don't include it in the series but add it to the computed NPV.
--ron