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Excel 2007 : Net Present Value Calculation with 2 different Payments

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    Exclamation Net Present Value Calculation with 2 different Payments

    Hello. I am struggling with calculating the net present value of payments with a 12% discount rate. The first 3 years (total of 36 payments) the payment is $950, and the subsequent 3 years (total of 36 payments) the payment is $450. The payments are made at the beginning of the year. I know from the book I am using the answer for this is $38,453 (they have it broken out that the first 36 payments NPV is $28,888 and the second 36 payments are $9,565). However, I am struggling how to do this within excel.

    First, I determined I should use the PV function, as I needed to show there are payments at the beginning of the term vs. the end. Using the formula:
    =PV(12%/12,36,950,1) I got an answer of $28,602.83, which is pretty close to the $28,888. However, I can't use this formula for the next 3 payments, as they are actually the 4th, 5th, and 6th payments.

    I also tried doing a 'blended' rate of $700 (average of the 950 and 450 pmts over 6 years), =PV(12%/12,72,700,1) ,and came up with $35,805.76, but this is too far away from the $38,453, so I can't use this as a long-term solution.

    Can anyone help? I've been searching the internet exhaustively and can't find a solution!

    Thanks!

    Ursula

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    Forum Moderator Richard Buttrey's Avatar
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    Re: Net Present Value Calculation with 2 different Payments

    Hi

    With 950 in A1:A35, and 450 in B1:B35, use the following.

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    The NPV formula assumes a cashflow at the beginning of the period, (unlike the PV where you can specify the start or end), hence you need to add the first value of 950 to the NPV for the subsequent 35 periods.

    HTH
    Richard Buttrey

    If this was useful then I'm pleased to have helped. If you wish to rate it click the small star icon below this post.

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    Re: Net Present Value Calculation with 2 different Payments

    Thank you very much!

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    Forum Moderator Richard Buttrey's Avatar
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    Re: Net Present Value Calculation with 2 different Payments

    Thanks for the feedback.

    Would you mark the original post as 'Solved' - see the 'How To..?' drop down on the blue header bar, and if appropriate rate the response.

    Regards

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    Re: Net Present Value Calculation with 2 different Payments

    The NPV formula assumes a cashflow at the beginning of the period, (unlike the PV where you can specify the start or end), hence you need to add the first value of 950 to the NPV for the subsequent 35 periods.

    As per your statement above, you mean, by adding the first installment to the NPV of 35 installments gives you the NPV of the Payment at End of the Period,

    If am wrong please correct me...

    regards
    sing_ideas

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    Administrator arlu1201's Avatar
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    Re: Net Present Value Calculation with 2 different Payments

    Sing_ideas,

    Welcome to the Forum, unfortunately:

    Your post does not comply with Rule 2 of our Forum RULES. Don't post a question in the thread of another member -- start your own thread. If you feel it's particularly relevant, provide a link to the other thread. It makes sense to have a new thread for your question because a thread with numerous replies can be off putting & difficult to pick out relevant replies.
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