Excel Tutorial 9: Working with Financial Tools and Functions TRUE/FALSE 1. The fv argument is required in the PMT function.

Excel Tutorial 9: Working with Financial Tools and Functions TRUE/FALSE 1. The fv argument is required in the PMT function. ANS: F PTS: 1 REF: EX 493 2. Cash flow has nothing to do with who owns the money. ANS: T PTS: 1 REF: EX 493 3. You should reference worksheet cells in which the values are entered so the values are easily visible. ANS: T PTS: 1 REF: EX 493 4. Cash flow is not concerned with the direction of the money as it moves in and out of the company. ANS: F PTS: 1 REF: EX 493 5. The NPER function returns the number of payment periods, not necessarily the number of years. ANS: T PTS: 1 REF: EX 496 6. If the NPER function returns #NUM!, the loan cannot be repaid in any length of time. ANS: T PTS: 1 REF: EX 496 7. If you are making periodic monthly payments, and the interest is compounded monthly, then the number of periods is in years. ANS: F PTS: 1 REF: EX 496 8. The functions used to work with loans are the same ones you used to work with investments; the only difference is the direction of the cash flow. ANS: T PTS: 1 REF: EX 499

9. As shown in the accompanying figure, earlier payment periods apply more of the payment toward the principal. ANS: F PTS: 1 REF: EX 500 10. In an amortization schedule, use relative references to refer to the original loan conditions and use absolute references to refer to information about specific payment periods. ANS: F PTS: 1 REF: EX 501 11. You can calculate cumulative payments on interest and principal using the CUMIPMT and CUMPRINC functions. ANS: T PTS: 1 REF: EX 503 12. To properly use financial functions, always place argument values directly into a financial formula. ANS: F PTS: 1 REF: EX 504 13. Assets such as raw materials a company uses to manufacture cars are considered tangible assets. ANS: F PTS: 1 REF: EX 514 14. To calculate a declining balance depreciation, use the DVB function. ANS: F PTS: 1 REF: EX 515 15. The major advantage of the payback period is that it takes into account the time value of money. ANS: F PTS: 1 REF: EX 527 16. The financial definition of net present value is the difference between the present value of future cash flows and the current cost of the initial investment. ANS: T PTS: 1 REF: EX 530

17. Both the NPV and the IRR functions assume the cash flows occur at evenly spaced intervals. ANS: T PTS: 1 REF: EX 531 18. The list of values in the IRR function must include at least one positive cash flow and one negative cash flow. ANS: T PTS: 1 REF: EX 531 19. Error values will propagate throughout a workbook. ANS: T PTS: 1 REF: EX 535 20. An error indicator (a red triangle in the upper-left corner of a cell) flags cells with an error or a potential error. ANS: F PTS: 1 REF: EX 535 MODIFIED TRUE/FALSE 1. The FV function calculates the full value of an investment or loan. ANS: F, future PTS: 1 REF: EX 490 2. If you don t include an fv value, Excel assumes a future value of 1. ANS: F 0 zero PTS: 1 REF: EX 493 3. A regular cash flow occurs when cash is going away from the investor. ANS: F, negative PTS: 1 REF: EX 490 4. If you plan to invest money for 18 months, the value of the nper argument in the PMT function is 1.5. ANS: F, 18 PTS: 1 REF: EX 493 5. The financial functions automatically format calculated values as currency with negative cash flow appearing in a green font. ANS: F, red

PTS: 1 REF: EX 493 6. With the FV function, if the amount invested each month is -30,000, this represents a positive cash flow. ANS: F, negative PTS: 1 REF: EX 495 7. If the NPER function returns the error value #REF a loan cannot be paid back in any length of time. ANS: F, #NUM! PTS: 1 REF: EX 496 8. To calculate an annual rate, multiply the value returned by the RATE function by the number of payments per year. ANS: T PTS: 1 REF: EX 497 9. As you repay a loan, each payment represents a positive cash flow as you are sending money to the lending institution. ANS: F, negative PTS: 1 REF: EX 499 10. Amortization schedules often format all entries as positive values, and then label the columns to indicate the values represent negative values. ANS: T PTS: 1 REF: EX 502 11. When using the PMT function to calculate monthly loan payments, the interest rate and the number of payments should be based on the interest rate per year and the total months to pay off the loan. ANS: F, month PTS: 1 REF: EX 504 12. You can extrapolate a series of values from the Series dialog box. ANS: T PTS: 1 REF: EX 513 13. The function DDB is used to calculate a declining balance depreciation. ANS: F double-declining double declining PTS: 1 REF: EX 515

14. The possibility that the entire transaction will fail, resulting in a loss of the initial investment is called the chance. ANS: F, risk PTS: 1 REF: EX 529 15. At higher rates of return, the net present value of the investment goes up. ANS: F, down PTS: 1 REF: EX 530 MATCHING Identify the letter of the choice that best matches the phrase or definition. a. PPMT function g. PMT function b. rate of return h. XIRR function c. IPMT function i. NPV d. IRR j. NPER function e. NPV function k. FV function f. RATE function l. PV function 1. Calculates the payment in each period required to pay off a loan or reach an investment goal 2. Calculates the number of payments required to pay off a loan or reach an investment goal 3. Calculates the per period interest rate required to pay off a loan or reach an investment goal 4. Calculates the amount of a loan payment applied to the principal 5. Calculates the amount of a loan payment used to pay off the interest 6. Calculates the present value of a loan or an investment 7. Calculates the future value of a loan or an investment 8. An interest rate that compares the value of current dollars to future dollars from a series of cash flows 9. The difference between the present value of an investment and the initial expenditure on that investment 10. Return rate for a series of future cash flows that will result in a net present value of zero 11. Calculates the internal rate of return for a series of unevenly spaced payments 12. Calculates the present value of a series of future cash flows 1. ANS: G PTS: 1 REF: EX 491 2. ANS: J PTS: 1 REF: EX 491 3. ANS: F PTS: 1 REF: EX 491 4. ANS: A PTS: 1 REF: EX 491 5. ANS: C PTS: 1 REF: EX 491 6. ANS: L PTS: 1 REF: EX 490 7. ANS: K PTS: 1 REF: EX 490 8. ANS: B PTS: 1 REF: EX 524 9. ANS: I PTS: 1 REF: EX 524 10. ANS: D PTS: 1 REF: EX 524 11. ANS: H PTS: 1 REF: EX 534 12. ANS: E PTS: 1 REF: EX 524

MULTIPLE CHOICE 1. The function calculates the amount paid into an investment or loan during each payment period. a. NPER c. PMT b. RATE d. INT ANS: C PTS: 1 REF: EX 491 2. The function calculates the future value of an investment or loan. a. RATE c. NPER b. PV d. FV ANS: D PTS: 1 REF: EX 490 3. The function calculates the present value of an investment or loan. a. PRES c. NPER b. PV d. FV ANS: B PTS: 1 REF: EX 490 4. The function calculates the interest rate charged or received during each payment period. a. RATE c. NPER b. PV d. FV ANS: A PTS: 1 REF: EX 491 5. The function calculates the number of payment periods in an investment or loan. a. RATE c. NPER b. PV d. FV ANS: C PTS: 1 REF: EX 491 6. To calculate the number of quarterly payments required to pay off a loan, use the function. a. PMT c. FV b. PV d. NPER ANS: D PTS: 1 REF: EX 492 7. Financial functions format calculated values as currency, with. a. positive cash flow appearing in red font b. positive cash flow enclosed in parentheses c. negative cash flow appearing in green font d. negative cash flow appearing in red font ANS: D PTS: 1 REF: EX 493 8. Cash flow is the movement of cash assets an account. a. into c. into or out of b. out of d. none of the above ANS: C PTS: 1 REF: EX 493 9. To calculate the number of payments required to pay off a loan or meet an investment goal, use the NPER function. a. monthly c. quarterly b. daily d. either a. or c.

ANS: D PTS: 1 REF: EX 495 10. The PMT value is also known as the payment. a. periodic c. inflow b. placement d. indexed ANS: A PTS: 1 REF: EX 492 11. With the PMT function, the type argument is when the payments are made at the end of each period. a. 0 c. a b. 1 d. -1 ANS: A PTS: 1 REF: EX 493 12. With the PMT function, the type argument is when the payments are made at the beginning of each period. a. 0 c. a b. 1 d. -1 ANS: B PTS: 1 REF: EX 493 13. FV is used to calculate the of a fund. a. future value c. forecast value b. fixed value d. first value ANS: A PTS: 1 REF: EX 494 14. Which of the following shows the syntax of the NPER function? a. =NPER(pmt, pv, [fv=0], [type=0]) b. =NPER(rate, pmt, [fv=0], [type=0]) c. =NPER(rate, pmt, pv [, fv=0] [, type=0]) d. =NPER(pmt, rate, pv, [fv=0], [type=0]) ANS: C PTS: 1 REF: EX 495 15. If the NPER function returns the error value, the loan cannot be paid back in any length of time. a. #REF! c. #TIME! b. #NUM! d. #PER! ANS: B PTS: 1 REF: EX 496 16. To calculate the annual rate, you must the value returned by the RATE function by the number of payments per year. a. add c. multiply b. subtract d. divide ANS: C PTS: 1 REF: EX 497 17. When you borrow money, the money you receive represents a cash flow. a. positive c. fixed b. negative d. neutral ANS: A PTS: 1 REF: EX 499

18. As shown in the accompanying figure, later payment periods apply more of the payment toward the. a. index c. interest b. interest rate d. principal ANS: D PTS: 1 REF: EX 500 19. The function returns the amount of a particular payment that is used to pay the interest on the loan. a. PMT c. INPMT b. IPMT d. NPMT ANS: B PTS: 1 REF: EX 500 20. In the function =CUMIPMT(rate, nper, pv, start, end, type), it is that defines whether the payments are made at the beginning or end of each period. a. rate c. end b. nper d. type ANS: D PTS: 1 REF: EX 503 21. Most Excel financial functions require a particular to the cash flow to return the correct value. a. index c. orientation b. valence d. direction ANS: D PTS: 1 REF: EX 504 22. When using the PMT function to calculate monthly loan payments, the interest rate and the number of payments should be based on the interest rate per month and the total to pay off the loan. a. weeks c. years b. months d. any of the above ANS: B PTS: 1 REF: EX 504 23. Income statements are often created. a. monthly c. annually b. semiannually d. any of the above

ANS: D PTS: 1 REF: EX 508 24. A(n) shows how much money a business makes or loses over a specified period of time. a. income projection c. profit analysis b. expense report d. income statement ANS: D PTS: 1 REF: EX 508 25. The item marked 1 in the accompanying figure represents the trend. a. periodic c. orthogonal b. growth d. linear ANS: D PTS: 1 REF: EX 509 26. The item marked 2 in the accompanying figure represents the trend. a. periodic c. orthogonal b. growth d. linear ANS: B PTS: 1 REF: EX 509 27. As shown in the accompanying figure, a(n) trend appears as a straight line. a. periodic c. orthogonal b. growth d. linear ANS: D PTS: 1 REF: EX 509 28. As shown in the accompanying figure, in a(n) trend, the values do not change by a constant amount. a. periodic c. orthogonal b. growth d. linear ANS: B PTS: 1 REF: EX 509 29. As shown in the accompanying figure, when plotted, a(n) trend displays the greatest increases near the end of the series. a. periodic c. orthogonal b. growth d. linear ANS: B PTS: 1 REF: EX 509

30. In a(n) trend, the values change by a constant amount. a. linear c. periodic b. growth d. orthogonal ANS: A PTS: 1 REF: EX 509 31. In a(n) trend, values change by a constant percentage and usually appear as a curve. a. linear c. periodic b. growth d. orthogonal ANS: B PTS: 1 REF: EX 509 32. To a series, the cells between the first and last cells in the series must be blank. a. extrapolate c. integrate b. concatenate d. interpolate ANS: D PTS: 1 REF: EX 510 33. The difference between a company s sales revenue and the cost of goods sold is the company s. a. cost of operation c. growth trend b. gross profit d. total revenue ANS: B PTS: 1 REF: EX 511 34. To calculate a series of values from a starting point without a defined ending point, you have to the values. a. interpolate c. asses b. extrapolate d. plot ANS: B PTS: 1 REF: EX 507 35. All of the following are examples of tangible assets except. a. equipment c. delivery trucks b. land d. production parts ANS: D PTS: 1 REF: EX 514 36. When you extrapolate a series, the value represents the amount that each value is increased or multiplied as the series is extended. a. Increase c. Extension b. Step d. Advance ANS: B PTS: 1 REF: EX 512 37. To project a trend that decreases rather than increases, use a step value of less than for a linear trend. a. -1 c. 1 b. 0 d. 2 ANS: B PTS: 1 REF: EX 513 38. To project a trend that decreases rather than increases, use a step value between for a growth trend. a. -1 and 0 c. 0 and 1 b. -1 and 1 d. 1 and 2 ANS: C PTS: 1 REF: EX 513

39. The process of allocating the original cost of an investment over the years of use is known as. a. interest c. depreciation b. balance d. amortization ANS: C PTS: 1 REF: EX 515 40. To calculate the depreciation of an asset, you need to know all of the following EXCEPT the. a. asset s original cost c. asset s type b. asset s useful life d. rate of depreciation ANS: C PTS: 1 REF: EX 515 41. To calculate a variable deprecation, use the function. a. VBD c. VDD b. DDB d. DB ANS: A PTS: 1 REF: EX 516 42. With depreciation, the asset depreciates by equal amounts each year of its lifetime until it reaches the salvage value. a. straight-line c. declining b. double-declining d. sum of years digit ANS: A PTS: 1 REF: EX 516 43. The function takes these arguments: cost, salvage, and life. a. SLN c. DB b. SYD d. VDB ANS: A PTS: 1 REF: EX 516 44. The item marked 1 in the accompanying figure is the value. a. sum c. initial asset b. declining balance d. salvage ANS: C PTS: 1 REF: EX 518 45. The item marked 2 in the accompanying figure is the value. a. sum c. initial asset

b. declining balance d. salvage ANS: D PTS: 1 REF: EX 518 46. The DB function used to calculate the declining balance depreciation has the following syntax:. a. =DB(salvage, life, period [month]) b. =DB(cost, salvage, period [month]) c. =DB(salvage, cost, life, period [month]) d. =DB(cost, salvage, life, period [month]) ANS: D PTS: 1 REF: EX 518 47. depreciation depreciates an asset by a constant percentage each year rather than a constant amount. a. Declining balance c. Interest reduced b. Double declining d. Straight-line ANS: A PTS: 1 REF: EX 517 48. Excel supports function(s) to calculate depreciation under different assumptions. a. one c. five b. two d. seven ANS: C PTS: 1 REF: EX 515 49. The function returns the sum-of-years digit depreciation that results in a more accelerated depreciation than straight-line depreciation but less than declining balance depreciation. a. DB c. SYD b. SLN d. VDB ANS: C PTS: 1 REF: EX 515 50. The function returns a variable declining depreciation for any specified period using any specified depreciation method. a. DB c. SYD b. SLN d. VDB ANS: D PTS: 1 REF: EX 515 51. The company s income after all expenses and taxes have been paid is called the. a. total income c. gross revenue b. net income d. bottom line ANS: B PTS: 1 REF: EX 521 52. The period is a quick method of projecting the value of an investment. a. investment c. cumulative b. payback d. time-value ANS: B PTS: 1 REF: EX 527 53. You can use the function to estimate how much a dollar amount today is worth in future dollars. a. PV c. FV b. IRR d. DCT ANS: C PTS: 1 REF: EX 528

54. A higher discount rate means that future dollars are in comparison to current dollars. a. discounted less c. amortized more b. discounted more d. amortized less ANS: B PTS: 1 REF: EX 530 55. The future values of an investment can be. a. positive c. either a. or b. b. negative d. neither a. nor b. ANS: A PTS: 1 REF: EX 528 56. To calculate the internal rate of return, use the function with the cost of the initial investment as the first cash flow value in a series. a. IRR c. NPV b. XNPV d. XIRR ANS: A PTS: 1 REF: EX 531 57. The NPV function is used in calculating the net present value of a transaction, which is the value of all the cash inflows and outflows in the investment adjusted by the time value of money. a. current c. future b. projected d. total ANS: A PTS: 1 REF: EX 528 58. The point at which the net present value of an investment equals is the internal rate of return. a. -1 c. 0.1 b. 0 d. 1 ANS: B PTS: 1 REF: EX 531 59. At rates beyond the internal rate of return, the net present value is, meaning that the expansion is no longer a good investment compared with the desired rate of return. a. positive c. negative b. integrated d. exponential ANS: C PTS: 1 REF: EX 531 60. When an investment requires the investor to make multiple future payments, rather than a single initial payment,. a. it will show no change in rate of return b. in will have a constant internal rate of return c. it may have several different possible internal rates of return d. none of the above ANS: C PTS: 1 REF: EX 532 61. In comparing two investments, a commonly used guideline is to accept the investment with the. a. higher NPV c. lower NPV b. higher IRR d. either a. or b. ANS: D PTS: 1 REF: EX 533 62. To choose between two or more investments, it s a good idea to graph the for each investment against different possible rates of return.

a. NPV c. XNPV b. IRR d. XIRR ANS: A PTS: 1 REF: EX 533 63. Use the XNPV and XIRR functions for cash flows that appear. a. with a regular pattern c. at evenly spaced intervals b. at unevenly spaced intervals d. none of the above ANS: B PTS: 1 REF: EX 533 64. A(n) worksheet projects the company s expected assets, liabilities, and equity. a. Asset Report c. Balance Sheet b. Income Statement d. Transactions ANS: C PTS: 1 REF: EX 535 65. Excel uses to denote error indicators. a. req squares c. green triangles b. yellow circles d. blue shading ANS: C PTS: 1 REF: EX 535 66. If active cell D12 contains the formula =D10+D11, cells D10 and D11 are cells for D12. a. feeder c. precedent b. dependent d. formula ANS: C PTS: 1 REF: EX 535 67. After you select a cell with an error indicator, you can click the Error Alert to display additional information about the possible error and determine if further action is needed. a. button c. ScreenTip b. icon d. menu ANS: A PTS: 1 REF: EX 535 68. A(n) arrow provides a visual clue to the relationship between two cells by pointing from the precedent cell to the dependent cell. a. tracer c. index b. outline d. key ANS: A PTS: 1 REF: EX 536 69. Tracer arrows disappear when you. a. correct the error source c. delete or move cells b. insert or delete columns and rows d. all of the above ANS: D PTS: 1 REF: EX 538 70. To evaluate a formula, you select the cell and then click the button from the Formula Auditing group on the Formulas tab. a. Define Formula c. Check Function b. Select Formula d. Evaluate Formula ANS: D PTS: 1 REF: EX 539 Case-Based Critical Thinking Questions

Case 9-1 Christian is having a lot of problems with errors in a very complicated spreadsheet that he inherited from a colleague, and he turns to another co-worker, Sebastian, for tips in how to trace errors in the sheet. 71. Sebastian tells Christian that all error values begin with the same symbol, so they can be easily identified as errors. What is the symbol? a. # c. ^ b. & d. % ANS: A PTS: 1 REF: EX 535 TOP: Critical Thinking 72. If Christian sees which of the following, Sebastian explains, there is a mistyped function name in the sheet. a. #FNCT? c. #NAME? b. #FORM? d. Any of the above ANS: C PTS: 1 REF: EX 525 TOP: Critical Thinking 73. If Christian sees red tracer arrows that means there is an error in the value being received from the precedent cell or passed to the cell. a. child c. dependent b. precedent d. contingent ANS: C PTS: 1 REF: EX 525 TOP: Critical Thinking 74. If in Christian s sheet, cell A4 is a precedent cell for cell B7, what kind of a cell is B7? a. contingent cell c. antecedent cell b. dependent cell d. indicated cell ANS: B PTS: 1 REF: EX 525 TOP: Critical Thinking 75. Sebastian tells Christian to search all of the error values until he reaches one that lacks something, and that is the source of the error values in the dependent cells. What does that error value lack? a. contingencies c. antecedents b. dependencies d. precedents ANS: D PTS: 1 REF: EX 535 TOP: Critical Thinking Case-Based Critical Thinking Questions Case 9-2 Mackenzie is studying for her midterm exam in her accounting class. Her study partner Libby is her go-to person for help with calculating depreciation. 76. Which of the following functions does Libby say is used to calculate a straight-line depreciation? a. DB c. SYD b. SLN d. DDB ANS: B PTS: 1 REF: EX 515 TOP: Critical Thinking 77. Which of the following functions does Libby say is used to calculate a declining balance depreciation? a. DB c. SYD b. SLN d. DDB

ANS: A PTS: 1 REF: EX 515 TOP: Critical Thinking 78. Which of the following functions does Libby say is used to calculate a sum-of-years digit depreciation? a. DB c. SYD b. SLN d. DDB ANS: C PTS: 1 REF: EX 515 TOP: Critical Thinking 79. Which of the following functions does Libby say is used to calculate a double-declining balance depreciation? a. DDB c. SYD b. SLN d. VBD ANS: A PTS: 1 REF: EX 515 TOP: Critical Thinking 80. Which of the following functions does Libby say is used to calculate a depreciation if it is variable? a. DB c. SYD b. SLN d. VDB ANS: D PTS: 1 REF: EX 515 TOP: Critical Thinking COMPLETION 1. The function calculates the number of payment periods in an investment or loan. ANS: NPER PTS: 1 REF: EX 492 2. The argument specifies whether payments are made at the end of each period or at the beginning. ANS: type PTS: 1 REF: EX 493 3. A positive cash flow, or, occurs whenever money is flowing into the account. ANS: cash inflow PTS: 1 REF: EX 490 4. A(n) cash flow occurs whenever money is flowing out of the account. ANS: negative PTS: 1 REF: EX 490 5. The PMT value is also known as the payment. ANS: periodic

PTS: 1 REF: EX 492 6. The difference between a loan and an investment is based on the direction of the. ANS: cash flow PTS: 1 REF: EX 493 7. The is the amount of the loan that is still unpaid. ANS: principal PTS: 1 REF: EX 500 8. To determine the interest rate needed to reach your savings goal, you can use the function. ANS: RATE PTS: 1 REF: EX 491 9. The item marked in the accompanying figure is the annual interest rate. ANS: 2 PTS: 1 REF: EX 494 10. The item marked in the accompanying figure is the quarterly cash outflow. ANS: 5 PTS: 1 REF: EX 494 11. The item marked in the accompanying figure is the interest rate per quarter. ANS: 3 PTS: 1 REF: EX 494 12. The item marked in the accompanying figure is the number of quarterly payments.

ANS: 4 PTS: 1 REF: EX 494 13. The item marked in the accompanying figure is the initial cash inflow. ANS: 1 PTS: 1 REF: EX 494 14. The function calculates the amount of a loan payment used to pay off the principal of the loan. ANS: PPMT PTS: 1 REF: EX 491 15. A(n) provides details about each loan payment, specifying how much of the payment is devoted toward interest and how much toward repaying the principal. ANS: amortization schedule PTS: 1 REF: EX 500 16. A(n) is also known as a profit and loss statement. ANS: income statement PTS: 1 REF: EX 506 17. If you know the beginning and ending values in a series and the series trend, you can fill in the missing values through. ANS: interpolation PTS: 1 REF: EX 507 18. When you extrapolate a series, you do not have to specify a(n) value. ANS: stopping ending final PTS: 1 REF: EX 512 19. The financial definition of is the difference between the present value of future cash flows and the current cost of the initial investment. ANS: net present value PTS: 1 REF: EX 530

20. You can use the Window to view the impact of a changing value in one worksheet on the cell values in the other cells. ANS: Watch PTS: 1 REF: EX 540 ESSAY 1. Describe the steps to interpolate a series of values between starting and ending values. ANS: Select the range with the first cell containing the starting value, blank cells for middle values, and the last cell containing the ending value. In the Editing group on the Home tab, click the Fill button, and then click Series. Specify whether the series is organized in rows or columns and the type of series to interpolate. Check the Trend check box. Click the OK button to insert the interpolated series into the middle cells. PTS: 1 REF: EX 509-EX 510 TOP: Critical Thinking 2. How do you determine which method of depreciation is most appropriate? ANS: The answer depends on the type of asset being depreciated. Tax laws allow different depreciation methods for different kinds of assets and different situations. In general, you want to choose the depreciation method that most accurately describes the financial status of the company. In tax statements, depreciation appears as an expense that is subtracted from the company s earnings. So, if you accelerate the depreciation of an asset in the early years of use, you might be underestimating the company s profits, making it appear that the company is less profitable than it actually is. On the other hand, depreciating an asset slowly could make it appears that the company is more profitable than it really is. For this reason, the choice of a depreciation method is best left to a tax accountant, fully aware of the financial issues and the tax laws involved in depreciating an asset. PTS: 1 REF: EX 519 TOP: Critical Thinking 3. Does the NPV function in Excel correspond to the financial definition of net present value? Explain your answer. ANS: The financial definition of net present value is the difference between the present value of future cash flows and the current cost of the initial investment. One source of confusion for Excel users is that despite its name, the NPV function does not return the net present value of an investment. Instead it returns the investment s present value. To calculate the net present value in Excel, the cost of the initial investment must be subtracted from the value returned by the NPV function using the formula NPV value initial investment where NPV value is the value returned by the NPV function, and initial investment is the initial cost of the investment. This formula assumes that the initial investment is made immediately, and not in the future using discounted dollars. PTS: 1 REF: EX 530 TOP: Critical Thinking