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Learn How to Calculate NPV with Quarterly Cash Flows in Excel

By now it should be easy to calculate the NPV in excel when given annual cash flows. But what if we want to calculate the same but with quarterly cash flows? This post will provide a step-by-step guide on how to calculate NPV with quarterly cash flows in excel.

Figure 1: How to find NPV when cash flows are quarterly

General syntax of the formula

=NPV (rate, cash flows) + Initial investment

Where;

  • Rate- will refer to the quarterly rate. We take annual rate multiply it by quarter
  • Cash flows- refers to the number of quarters we have in the specified period. Take the periods multiply divide by quarter,

Understanding the formula

The use of the NPV formula is fundamental when it comes to finding the NPV even when we have the cash flows as quarterly.

All we need to know is to understand how to make the rate and cash flow be quarterly, if they are given in annual terms.

How the formula works

To calculate the net present value with a given initial investment and annual cash flows and annual rate, we need to first make the rate and time quarterly.

To do this, we multiply the rate by quarter and divide the time by quarter.

Ones we have these, we proceed to find the NPV the normal way using the formula;

=NPV (rate, cash flows) + Initial investment

Example

Assuming that we have initial investment of $100, and cash flows of $80 for a period of 2 years, what will be the NVP given rate of interest as 10%?

We proceed as follows;

Step 1: Prepare and tabulate your Excel table

Figure 2: Example of how to find NPV with quarterly cash flows

Step 2: Prepare a column for the annual data and quarterly data as shown above.

Step 3: Enter the formula, with the quarterly data in the cell where you want to have the result for the NPV with quarterly cash flows.

Step 4: Press Enter to get the answer.

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