Net Present Value Calculations Exercise - Solution

Table of Contents
NPV
NPV (Mid-period)
XNPV
XNPV (Mid-period)

Notes
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NPV Calculation
All Amounts Denominated in $MM Unless Otherwise Stated

Calculate the Net Present Value (NPV) assuming annual cash flows of $15,000 per year and a discount rate of 10%. Use the NPV fun

Year 2021 2022 2023 2024 2025

Cash Flow $15,000 $15,000 $15,000 $15,000 $15,000
Discount Rate 10%

Net Present Value (NPV) $92,169

scount rate of 10%. Use the NPV function.

2026 2027 2028 2029 2030

$15,000 $15,000 $15,000 $15,000 $15,000
© Corporate Finance Institute. All rights reserved.

NPV Calculation (Mid-period Discounting)

All Amounts Denominated in $MM Unless Otherwise Stated

Calculate the Net Present Value (NPV) assuming annual cash flows of $15,000 per year and a discount rate of 10%.
Calculate NPV with and without mid-period discounting.

Year 2021 2022 2023 2024 2025

Cash Flow $15,000 $15,000 $15,000 $15,000 $15,000
Discount Rate 10%

NPV $92,169
NPV (Mid-Period) $96,667

Using simply the NPV function results in a net present value that is discounted too much because cash flows are assumed to occur at
With cash flows that occur throughout the year, mid-period disocunting yields a net present value that is approximately 5% higher.
scount rate of 10%.

2026 2027 2028 2029 2030

$15,000 $15,000 $15,000 $15,000 $15,000

cash flows are assumed to occur at the end of the period.

that is approximately 5% higher.
© Corporate Finance Institute. All rights reserved.

XNPV Calculation
All Amounts Denominated in $MM Unless Otherwise Stated

Calculate the Net Present Value (NPV) assuming annual cash flows of $15,000 per year and a discount rate of 10%. Use the XNPV fu

Year 1/1/2021 12/31/2021 12/31/2022 12/31/2023 12/31/2024

Cash Flow $0 $15,000 $15,000 $15,000 $15,000
Discount Rate 10%

XNPV $92,173
scount rate of 10%. Use the XNPV function.

12/31/2025 12/31/2026 12/31/2027 12/31/2028 12/31/2029 12/31/2030

$15,000 $15,000 $15,000 $15,000 $15,000 $15,000
© Corporate Finance Institute. All rights reserved.

XNPV Calculation (Mid-period Discounting)

All Amounts Denominated in $MM Unless Otherwise Stated

Calculate the Net Present Value (NPV) assuming annual cash flows of $15,000 per year and a discount rate of 10%. Use the XNPV fu
Calculate NPV with and without mid-period discounting.

Year 1/1/2021 12/31/2021 12/31/2022 12/31/2023 12/31/2024

Mid-Period 1/1/2021 7/2/2021 7/1/2022 7/1/2023 7/1/2024
Cash Flow $0 $15,000 $15,000 $15,000 $15,000
Discount Rate 10%

XNPV $92,173
XNPV (Mid-Period) $96,681
NPV (Mid-Period) $96,667

Using simply the XNPV function results in a net present value that is discounted too much because cash flows are assumed to occur
With cash flows that occur throughout the year, mid-period disocunting yields a net present value that is approximately 5% higher.
Notice, the with mid-period discounting, NPV and XNPV yield similar results. The XNPV function is more precise as it calculates net p
scount rate of 10%. Use the XNPV function.

12/31/2025 12/31/2026 12/31/2027 12/31/2028 12/31/2029 12/31/2030

7/1/2025 7/1/2026 7/1/2027 7/1/2028 7/1/2029 7/1/2030
$15,000 $15,000 $15,000 $15,000 $15,000 $15,000

e cash flows are assumed to occur at the end of the period.

that is approximately 5% higher.
s more precise as it calculates net present value to specific days.