Excel's Formula - sisman

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Part III: Financial Formulas
Figure 12-2: An initial investment returns positive future cash flows.
The NPV is negative, so this analysis indicates that buying the snowplow is not a good investment.
Several factors that influence the result:
First, I defined a “good investment” as one that returns 10% when I set the discount rate.
If you settle for a lesser return, the result might be satisfactory.
The future cash flows are generally (but not always) estimates. In this case, the potential
plow owner assumes increasing revenue over the ten-year life of the equipment. Unless
he has a ten-year contract to plow snow that sets forth the exact amounts to be received,
the future cash flows are educated guesses at how much money he can make.
Finally, the initial investment plays a significant role in the calculation. if you can get the
snowplow dealer to lower his price, the ten-year investment may prove worthwhile.
No initial investment
You can look at the snowplow example in a different way. In the previous example, you knew the
cost of the snowplow and included that as the initial investment. The calculation determines
whether the initial investment would produce a 10% return. You can also use NPV to tell what initial
investment is required to produce the required return. That is, how much should you pay for
the snowplow? Figure 12-3 shows the calculation of the NPV of a series of cash flows with no initial
investment.
The NPV calculation in cell B20 uses the following formula:
=NPV($B$3,B8:B17)+B7