What is a stream of future cash flows worth today? A DCF discounts each one back at a required rate and sums them — the foundation of valuing projects, businesses, and investments.
The example
Five years of cash flows at a 10% discount rate.
| A | B | |
|---|---|---|
| 1 | Item | Value |
| 2 | Sum of flows | $1,500 |
| 3 | DCF value (10%) | $1,118 |
The formula
The formula:
How it works
How it works:
NPV(rate, range)assumes the first cash flow is one period out and discounts each accordingly.- It sums the discounted values — the present value of the whole stream.
- For a project, subtract the upfront cost (a period-0 outlay) for net present value:
=NPV(rate, flows) − cost. - The discount rate reflects risk and the time value of money — higher rate, lower present value.
NPV’s timing quirk: Excel’s NPV discounts the first value as if it’s one period away. If your period-0 cash flow happens today, keep it outside NPV and add it: =cf0 + NPV(rate, cf1:cfn).
Try it: interactive demo
Cash flows (one per line) + rate.
Variations
Net present value
Less the cost:
Cash flow today
Period 0 outside NPV:
With a terminal value
Add a final lump:
Pitfalls & errors
NPV timing. The first value is discounted one period out — keep a today cash flow outside NPV.
Rate per period. Match the discount rate to the cash-flow frequency (annual flows, annual rate).
Garbage in, garbage out. A DCF is only as good as the projected cash flows and the chosen rate.
Practice workbook
Frequently asked questions
How do I do a discounted cash flow (DCF) in Excel?
How does Excel's NPV handle the timing?
What discount rate should I use?
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