Q:

# How does the NPV function in Excel work?

A:

The NPV function uses data points that signify discount rate, income and future payments to calculate the net present value of an investment. When used in an NPV calculation, the income is represented by positive values while future payment data is represented using negative values in the spreadsheet.

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The result of an NPV calculation is based heavily on future cash flow and must include all cash flow included in the period. If the first instance of cash flow occurs at the beginning of the data period, this value is added to the result of the NPV calculation rather than being included as part of the data set.

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