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Chapter 20. Building Discount Formulas > Calculating the Net Present Value

Calculating the Net Present Value

The net present value is the sum of a series of net cash flows, each of which has been discounted to the present using a fixed discount rate. If all the cash flows are the same, you can use the PV() function to calculate the present value. But when you have a series of varying cash flows, as in the rental property example, you can't apply the PV() function directly.

Excel has a direct route to calculating net present value, but let's take a second to examine a method that calculates this value from first principles. This will help you understand exactly what's happening in this kind of cash-flow analysis.


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