Which Excel function is used to calculate the present value of a payment plan?

The present value of a payment plan can be accurately calculated using the PV function in Excel. This function is specifically designed to determine the present value of an investment or cash flow based on a constant interest rate and a series of future payments.

When working with financial planning, the present value helps determine how much future cash flows are worth in today's dollars. The PV function takes into account the interest rate, the number of periods, and the payment amount, enabling users to assess the value of receiving a specific amount of money in the future compared to receiving that money now.

While the NPV function, which stands for Net Present Value, does also consider cash flows over time, it is used for a slightly different purpose—it computes the difference between the present value of cash inflows and outflows over time. Therefore, it is not primarily used to calculate the present value of a single payment plan but rather to analyze the profitability of an investment.

The SUM function simply adds numbers together and does not incorporate the time value of money into its calculations. The IRR function calculates the internal rate of return for a series of cash flows, which is used primarily for evaluating the profitability of investments rather than calculating present values.

Hence, the PV function is the most appropriate and accurate