Every proposed project has its own risks.

We cannot just accept any project and hope for positive returns. We need to first assure ourselves that the project will provide decent returns for our business. How do we know if a project will provide a good return or not?

We use feasibility study.** A feasibility study is a tool used to determine the strengths and weaknesses of a proposed project, with the aim of maximizing the benefits once the proposal is accepted.**

We have different ways to execute a feasibility study, and those are what we will discuss in this guide. We will even let you teach how to do them in Excel.

Let’s get started.

**Net Present Value (NPV)**

**Net Present Value** is the sum of all discounted cash flows of a project. The cash flows are discounted at the rate of the cost of capital. This cost of capital is the minimum rate of return required by the company’s investors.

__In Excel:__

Let’s use the following details.

**Step 1:** The syntax for NPV is easy in Excel:

The rate is the cost of capital. After that, the values are cash flows arising from the project.

Type =NPV

**Step 2: **After typing the =NPV, input the rate (cost of capital) and the values (cash flows).

**Note:** The cash flows should be in Currency or Number format.

**Step 3:** Time to reject or accept the project.

If NPV is positive, the project is accepted. Being positive means that the project’s returns meet the required rate of return of the investors.

If the NPV is negative, the project is rejected. It does not meet the rate of return of investors.

Since our project’s NPV is -$59,918.82 given the cost of capital is 12%, the project is rejected.

**X Net Present Value (XNPV)**

The NPV formula is used when the inflows has a fixed time interval between them. For example, the cash flows could be per year, or quarterly or per month. But, if the dates are not periodic, we use **XNPV.**

__In Excel:__

Let’s use the following details.

**Step 1. **Type =XNPV(

**Step 2. **The syntax for XNPV calls for rate (cost of capital), values (cash flows) and additionally, dates. Notice that NPV does not require us the dates because the formula automatically assumes that the dates are periodic.

But, XNPV deals with non-periodic dates, it needs us to supply the dates of the cash flows.

Be sure to keep the dates in Date format, and the Cash Flows in Number or Currency Format.

**Step 3. **Reject or accept the project based on the XNPV. Since our XNPV is $157,739.49 based on a cost of capital of 12%, we will **accept **the project.

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