At present, it is very important to know the calculation of present value of future cash Flows. If you want to invest somewhere, or you want to save money in every step you should know the present value of future cash flows. So, in this article, I will show you how to calculate the present value of future cash flows.

**Table of Contents**hide

## What Is Present Value of Future Cash Flows?

Present Value (PV) of Future Cash Flows is a process of discounting the cash that you expect to get in the future with a value of the current time. The present value may be greater than future cash flows or vice versa. Furthermore, the present value is less than the future cash flow for inflation.

## How to Calculate Present Value of Future Cash Flows: 4 Methods

To explain the 4 methods on how to calculate the present value of future cash flows in Excel, I will use the following dataset. Which has a **Discount Rate, Time Period, **and** Future Cash Flow**.

### 1. Use of PV Function to Calculate Present Value of Future Cash Flows

Here, you can use **the PV function** to calculate the present value of future cash flows**.** The steps are given below.

**Steps:**

- Firstly, you need to select a different cell
**D6**where you want to calculate the present value. - Secondly, use the corresponding formula in the
**D6**cell.

`=PV($C$4,B6,0,C6)`

**Formula Breakdown**

Here, the **PV **function will return the present value of an investment.

**C4**denotes**rate**as the annual interest rate. The**Dollar ($)**sign denotes that the value of the**C4**cell is fixed.**B6**denotes**NPER**as the total period of time.- As there is no Payment so
**PMT**will be**0**. **C6**denotes**FV**as the Future Cash Flow.

- Now, press
**ENTER**to get the**Present Value**.

Here, the **Minus** sign denotes that you need to keep this amount at any monetary institute.

- After that, you have to drag the
**Fill Handle**icon to**AutoFill**the corresponding data in the rest of the cells**D7:D10**.

At this time, you will see the following result.

- Â Now, you have to select the data range. Here, I have selected
**D5:D10.** - Then, from the
**Home**tab >> you should go to the**Number**feature. - After that, in the
**Number**feature >> Click on the**Drop-Down Arrow**>> At this time, you need to choose currency.

- Finally, from the
**Number**feature >> you need to**Click**two times on decrease decimal to decrease the decimal.

- Now, you need to press the
**CTRL+1**keys to open the**Format Cells**dialog box directly.

Also, you can use the **Context Menu Bar** or the **Custom Ribbon** to go to the** Format Cells **command.

*Â First, select the data range >> right-click on the data >> choose the***Format Cells**option.

In the case of using **Custom Ribbon**,

*Select the data range >> from the***Home**tab >> go to the**Format**feature >> choose the**Format Cells**command.

After that, a dialog box named** Format Cells **will appear.

- Now, from that dialog box, you have to make sure that you are on the
**Number**command. - Then, you need to go to the
**Currency**option. - At this time, choose the
**second**option from the**Negative numbers**option. - Finally, press
**OK.**

Furthermore, to get the total Present value, I will use **the** **SUM function**.

- Firstly, you need to select a different cell
**D11**where you want to calculate the total Present Value. - Secondly, use the corresponding formula in the
**D11**cell.

`=SUM(D6:D10)`

- Finally, press
**ENTER**.

Here, the **SUM** function will return the summation of the data range **D6:D10**. At last, you will get the following present value.

**Read More: **How to Calculate Present Value of Uneven Cash Flows in Excel

### 2. Applying NPV Function for Calculating Present Value

You can apply **the NPV function** to calculate the present value of future cash flows**.** The steps are given below.

**Steps:**

- Firstly, you need to select a different cell
**C11**where you want to calculate the present value. - Secondly, use the corresponding formula in the
**C11**cell.

`=NPV(C4,C6:C10)`

**Formula Breakdown**

Here, the **NPV **function will return the net present value of an investment.

**C4**denotes the discount rate. Which is**5%**.**C6:C10**denotes the series of**FV**as the Future Cash Flows.

- Now, press
**ENTER**to get the Net Present Value.

**Read More: **Calculate NPV for Monthly Cash Flows with Formula in Excel

### 3. Employing Generic Formula to Calculate Present Value of Future Cash Flows

You can employ the generic formula to calculate the Present Value of Future Cash Flows.

**Steps:**

- Firstly, you need to select a different cell
**D6**where you want to calculate the Present Value. - Secondly, use the corresponding formula in the
**D6**cell.

`=C6/((1+$C$4)^B6)`

**Formula Breakdown**

- Here,
**C4**denotes the rate as the annual discount rate. The**Dollar ($)**sign denotes that the value of the**C4**cell is fixed. - Firstly, I have added
**1**with the discount rate.**Output: 1.05.**

- Secondly, the
**Power (^)**sign raises it to a fixed power which is the value of**B6**cell. Also, that is the time period.**Output: 1.05.**

- Finally, I divided the
**C6**cell value by**1.05.****Output: $3,809.52.**

- Now, press
**ENTER**to get the present value.

- After that, you have to drag the
**Fill Handle**icon to**AutoFill**the corresponding data in the rest of the cells**D7:D10**.

Furthermore, to get the total present value, I will use the **SUM** function.

- Firstly, you need to select a different cell
**D11**where you want to calculate the total present value. - Secondly, use the corresponding formula in the
**D11**cell.

`=SUM(D6:D10)`

- Finally, press
**ENTER**.

Here, the **SUM** function will return the summation of the data range **D6:D10**. Lastly, you will get the following Present Value.

**Read More: **How to Apply Present Value of Annuity Formula in Excel

### 4. Using Generic Formula for Compound Interest

You can employ the generic formula to calculate the present value of future cash flows in the case of Compound Interest. Letâ€™s have the following data set.

The steps are given below.

**Steps:**

- Firstly, you need to select a different cell
**C9**where you want to calculate the present value. - Secondly, use the corresponding formula in the
**C9**cell.

`=C4/((1+C5/C7)^(C6*C7))`

**Formula Breakdown**

- Here,
**C5**denotes rate as the annual discount rate. - Firstly, I have divided the cell value of
**C5**by Compounding year or**C7**cell value.- Output:
**0.016666667.**

- Output:
- Secondly, I have added
**1**with the result.**Output: 1.016666667.**

- Thirdly, I have multiplied C6 with C7.
**Output: 15.**

- Fourthly, the
**Power (^)**sign raises it to a fixed power.**Output: 1.281382444.**

- Finally, I divided the
**C4**cell value by the**output.****Output:$13,423.00 .**

- Now, press
**ENTER**to get the present value.

**Read More: **How to Calculate Present Value of Lump Sum in Excel

## ðŸ’¬ Things to Remember

Try to avoid generic formulas as there are built-in functions to calculate the present value of future cash flows**.**

## Practice Section

Now, you can practice the explained method by yourself.

## Download Practice Workbook

You can download the practice workbook from here:

## Conclusion

I hope you found this article helpful. Here, I have explained 4 methods to calculate present value of future cash flows. Please, drop comments, suggestions, or queries if you have any in the comment section below.

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