Understanding net present values

Source: FE

Finance professionals are heavily dependent on Excel functions to do complex time value calculations. These calculations are used to evaluate cash flows of projects or payoffs of complex non-linear derivative instruments.

These involve finding out the internal rate of returns (IRR) for different types of financial problems. Technically, an IRR is nothing, but the rate at which the net present value of a payoff becomes zero. Net present value (NPV) is basically the difference between the present value of cash inflows and present value of cash outflows.

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