Using Excel Perhaps the best tool for performing this NPV calculation is Microsoft Excel. You plug the variables for your project into Excel’s NPV formula, and Excel does the calculations for you. To use this formula:

• Chose the cell on your spreadsheet where you would like the information to be displaed.


• Click on Insert → Function.


• Choose financial functions from the list of Function categories.


• Select the function name NPV


• Enter your rate or cost of capital and the value for each year you are considering in the pop-up window.


• Hit Ok and Excel will populate the cell on your spreadsheet with NPV results.

Practice – Pizza Example
Let’s go back to our pizza example. Imagine you have done your net income calculations from year one of the business to year10. Here’s what you believe you will make in net income each year:

Y1: 8,000

Y2: 8,500

Y3: 10,000

Y4: 12,000

Y5: 14.000

Y6: 18,000

Y7: 23,000

Y8: 29,000

Y9: 34,000

Y10: 45,000

Remember, you have been given a cost of capital of 7%. When you are working in Excel keep in mind that 7% must be expressed as a decimal. So 7% isn’t entered as 7 in the formula is entered as .07.

Go ahead practice calculating this example. Open an Excel spreadsheet. Use the instructions to program the NPV formula. How much will you make, in today’s money for the first 10 years of your pizza business?

Did you get $126,756.53? So in today’s money your projected profits over the first 10 years translates to $126,756.53.

Let’s look at the effect cost of capital has on your NPV. Try changing the cost of capital rate from 7% down to 2%. What are your results now? $175,325.61. See how a better rate makes your investment much more profitable?