also knew that she could either enter the value directly or type in the

Also knew that she could either enter the value

This preview shows page 2 - 5 out of 5 pages.

also knew that she could either enter the value directly or type in the location of the cell that the value was in. She chose to enter the address of the cell, just in case the information related to the project changed. For Value2 , she entered the location of the Year 2 operating cash flow and continued this process until all of the boxes, including Value7 , were filled. Satisfied that all of the data were entered correctly, she clicked on the OK button. Initially, the team was astonished by the result. The NPV Function indicated that the NPV of the project was $177.836 million, well above the required threshold of 0. Bill was the first to question, “What about the initial investment?”
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Bill was right. Even though the function called itself NPV , it really only calculated the present value of the operating and terminal cash flows. To actually calculate NPV, the amount needed to be netted against the initial investment. Selma created a cell in the spreadsheet, netted the two amounts, and the result was now an NPV of $27.836 million. Even after this adjustment, the project still had an NPV greater than 0. Initial Investment (150,000) PV of OCFs 177,836 NPV 27,836 Video Resource The following video further demonstrates how to calculate the Net Present Value:
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