Forum Discussion
NPV and Discount Rate
Hi everybody!
I just ran into a strange behavior for the NPV formula, that I don't understand.
I am used to the notion that the NPV of a given series of values decreases as the discount rate increases. But take a look at the table below:
| Series | Disc. Rate | NPV | |
| -778688.2304 | 8.00% | ($4,292,762.91) | |
| -738005.9719 | 8.50% | ($4,215,446.11) | |
| -696612.9226 | 9.00% | ($4,139,158.97) | |
| -654489.9185 | 9.50% | ($4,064,034.18) | |
| -611617.327 | 10.00% | ($3,990,178.10) | |
| -567975.0348 | 10.50% | ($3,917,674.53) | |
| -523542.4367 | 11.00% | ($3,846,587.90) | |
| -478298.4223 | |||
| -432221.3644 | |||
| -385289.1055 | |||
| -337478.9447 | |||
| -288767.6245 | |||
| -239131.3163 | |||
| -188545.6067 | |||
| -136985.4829 | |||
| -84425.31739 | |||
| -30838.85305 | |||
| 23800.81275 | |||
| 79521.24419 | |||
| 136350.6834 | |||
| 194318.0676 | |||
| 253453.0459 | |||
| 313785.9975 | |||
| 375348.0497 | |||
| 438171.0967 |
As you can see, the NPV, while always negative, keeps increasing as the discount rate increases from 8% to 11%. Can anyone explain to me how this is happening?
Thanks!
Stefano
1 Reply
What I notice is that the absolute amount is decreasing. This makes me suspect that you may have just entered the various variables in the NPV function with a missing minus sign for one of them.
As an aside, when we get unusual or unexpected values from a function like NPV, the likelihood that it's a problem with Excel is virtually zero; far more likely that we've inadvertently done something incorrectly in using the function.
