A B C D

1 COMPUTING THE PRESENT VALUE

2 Discount rate 10%
3
Present
4
Year Cash flow value
5 1 100 90.9091 #VALUE!
6 2 100 82.6446 #VALUE!
7 3 100 75.1315 #VALUE!
8 4 100 68.3013 #VALUE!
9 5 100 62.0921 #VALUE!
10
11 Net present value
12 Summing cells C5:C9 379.08 #VALUE!
13 Using Excel's NPV function 379.08 #VALUE!
14 Using Excel's PV function 379.08 #VALUE!
 A B C D

COMPUTING THE PRESENT VALUE

In this example the cash flows are not equal
1 Either discount each cash flow separately or use Excel's NPV
function
Excel's PV doesn't work for this case
2 Discount rate 10%
3
Cash Present Present value
4
Year flow value of each cash flow
5 1 100 90.9091 #VALUE!
6 2 200 165.2893 #VALUE!
7 3 300 225.3944 #VALUE!
8 4 400 273.2054 #VALUE!
9 5 500 310.4607 #VALUE!
10
11 Net present value
12 Summing cells C5:C9 1065.26 #VALUE!
13 Using Excel's NPV function 1065.26 #VALUE!
 A B C D
1 COMPUTING THE NET PRESENT VALUE
2 Discount rate 10%
3
Present
4
Year Cash flow value
5 0 -250 -250.00 #VALUE!
6 1 100 90.91 #VALUE!
7 2 100 82.64 #VALUE!
8 3 100 75.13 #VALUE!
9 4 100 68.30 #VALUE!
10 5 100 62.09 #VALUE!
11
12 Net present value
13 Summing cells C5:C10 129.08 #VALUE!
14 Using Excel's NPV function 129.08 #VALUE!
 A B C
1 COMPUTING THE VALUE OF A FINITE ANNUITY
2 Periodic payment, C 1,000
3 Number of future periods paid, n 5
4 Discount rate, r 12%
5 Present value of annuity
6 Using formula 3,604.78 #VALUE!
7 Using Excel's PV function 3,604.78 #VALUE!
8
Annuity
9
Period payment
10 1 1,000.00 #VALUE!
11 2 1,000.00
12 3 1,000.00
13 4 1,000.00
14 5 1,000.00
15
16 Present value using Excel's NPV function 3,604.78 #VALUE!
 A B C
1 COMPUTING THE VALUE OF AN INFINITE ANNUITY
2 Periodic payment, C 1,000
3 Discount rate, r 12%
4 Present value of annuity 8,333.33 #VALUE!
 A B C
1 COMPUTING THE VALUE OF A GROWING FINITE ANNUITY
2 First payment, C 1,000
3 Growth rate of payments, g 6%
4 Number of future periods paid, n 5
5 Discount rate, r 12%
6 Present value of annuity
7 Using formula 4,010.91 #VALUE!
8
Annuity
9
Period payment
10 1 1,000.00 #VALUE!
11 2 1,060.00 #VALUE!
12 3 1,123.60 #VALUE!
13 4 1,191.02 #VALUE!
14 5 1,262.48 #VALUE!
15
16 Present value using Excel's NPV function 4,010.91 #VALUE!
 A B C
1 COMPUTING THE VALUE OF A GROWING INFINITE ANNUITY
2 Periodic payment, C 1,000 <-- Starting at date 1
3 Growth rate of payments, g 6%
4 Discount rate, r 12%
5 Present value of annuity 16,666.67 #VALUE!
 A B C
1 INTERNAL RATE OF RETURN
2 Year Cash flow
3 0 -800
4 1 200
5 2 250
6 3 300
7 4 350
8 5 400
9
10 Internal rate of return 22.16% #VALUE!
 A B C
1 INTERNAL RATE OF RETURN
2 Discount rate 12%
3
4 Year Cash flow
5 0 -800
6 1 200
7 2 250
8 3 300
9 4 350
10 5 400
11
12 Net present value (NPV) 240.81 #VALUE!
 A B C
1 INTERNAL RATE OF RETURN
2 Discount rate 22.16%
3
4 Year Cash flow
5 0 -800
6 1 200
7 2 250
8 3 300
9 4 350
10 5 400
11
12 Net present value (NPV) 0.00 #VALUE!
 A B C D E
1 INTERNAL RATE OF RETURN
2 Year Cash flow
3 0 -800
4 1 200
5 2 250
6 3 300
7 4 350
8 5 400
9
10 Internal rate of return 22.00% #VALUE!
11
12 USING THE IRR IN A LOAN TABLE
Division of cash flow
between investment
13
income and return of
=-B3 =$B$10*B15 principal

Investment at
14 = beginning of Cash flow Return of
- Year year at end of year Income principal
15 B 1 800.00 200.00 176.00 24.00
16 1 2 776.00 250.00 170.72 79.28
9 3 696.72 300.00 153.28 146.72
17
18 = 4 550.00 350.00 121.00 229.00
19 G 5 321.00 400.00 70.62 329.38
20 2 6 -8.38
21 0
- =B15-E15
22 The remaining investment principal
H
23 2 in the year after the last cash flow is
24 =
0 zero, indicating that all the principal
$
25 F has been repaid.
B
26 2
$year
27 0 CF
1
- 0 -1700
28
I5
29 2* 1 500
30 F0 2 450
31 2 3 550
32 0 4 400
33 5 750
34 6 700
35 7 600
36 8 300
37
38 IRR 26%
 F G H I J K L
1
2
3
4
5
6
7
8
9
10
11
12

13

IRR 22.16%

14
YR Beg CF CF of Year Profit Principal
15 #VALUE! 1 800 200 177.28 22.72
16 2 777.28 250 172.2452 77.75475
17 3 699.5252 300 155.0148 144.9852
18 4 554.54 350 122.8861 227.1139
19 5 327.4261 400 72.55763 327.4424
20 699.9837 800.0163
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
 A B C D E F G H
1 USING A LOAN TABLE TO FIND THE IRR
2 IRR? 15.00%
3

Division of cash flow

between investment
4
income and return of
principal

5 Principal Cash flow

at beginning at end of
Year of year year Income Principal
6 1 1,000.00 300 150.00 150.00 #VALUE!
7 2 850.00 200 127.50 72.50
8 3 777.50 150 116.63 33.38
9 4 744.13 600 111.62 488.38
10 5 255.74 900 38.36 861.64
11 6 -605.89
12 =$B$2*B6
13 =B6-E6
14
15 Direct calculation of IRR
16 Year Cash flow
17 0 -1,000
18 1 300
19 2 200
20 3 150
21 4 600
22 5 900
23
24 IRR 24.44% #VALUE!
 I J
1
2
3

6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
 A B C

1
USING EXCEL'S RATE FUNCTION TO
COMPUTE THE IRR
2 Initial investment 1,000
3 Periodic cash flow 100
4 Number of payments 30
5 IRR 9.307% #VALUE!
 A B C D E F G H
1 MULTIPLE INTERNAL RATES OF RETURN
2 Discount rate 6%
3 NPV -3.99 #VALUE! DATA TABLE
Discount
4
rate NPV
5 Year Cash flow -3.99
6 0 -145 0% -20.00
7 1 100 3% -10.51
8 2 100 6% -3.99
9 3 100 9% 0.24
10 4 100 12% 2.69
11 5 -275 15% 3.77
12 18% 3.80
Net present value

13 21% 3.02
14 24% 1.62
Two IRRs 27% -0.24
15 10.00
16 30% -2.44
17 5.00 33% -4.90
18 36% -7.53
0.00
19 0% 5% 10% 15% 20% 25% 30% 35% 40% 39% -10.27
20 -5.00
21 Discount rate Note: For a discussion of how
-10.00
22 to create data tables in Excel
23 -15.00 see Chapter 30.
24
-20.00
25
26 -25.00
27
28
29 Identifying the two IRRs
30 First IRR 8.78% #VALUE!
31 Second IRR 26.65% #VALUE!
 I
RETURN 1
2
3
4
5 #VALUE!
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
te: For a discussion
21 of how
reate data tables
22 in Excel
23
24
25
26
27
28
29
30
31
 A B C D E F G H
1 MULTIPLE INTERNAL RATES OF RETURN
2 Discount rate 6%
3 NPV -3.99 #VALUE! DATA TABLE
Discount
4
rate NPV
5 Year Cash flow -3.99
6 0 -145 0% -20.00
7 1 100 3% -10.51
8 2 100 6% -3.99
9 3 100 9% 0.24
10 4 100 12% 2.69
11 5 -275 15% 3.77
12 18% 3.80
Net present value

13 21% 3.02
14 24% 1.62
Two IRRs 27% -0.24
15 10.00
16 30% -2.44
17 5.00 33% -4.90
18 36% -7.53
0.00
19 0% 5% 10% 15% 20% 25% 30% 35% 40% 39% -10.27
20 -5.00
21 Discount rate Note: For a discussion of how
-10.00
22 to create data tables in Excel
23 -15.00 see Chapter 30.
24
-20.00
25
26 -25.00
27
28
29 Identifying the two IRRs
30 First IRR 8.78% #VALUE!
31 Second IRR 26.65% #VALUE!
 I
RETURN 1
2
3
4
5 #VALUE!
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
te: For a discussion
21 of how
reate data tables
22 in Excel
23
24
25
26
27
28
29
30
31
 A B C D E F G H I
1 BOND CASH FLOWS: NPV CROSSES x-AXIS ONLY ONCE, SO THERE IS ONLY ONE IRR
2 Year Cash flow Data table: Effect of
3 0 -800 discount rate on NPV
4 1 100 1,000.00 #VALUE!
5 2 100 0% 1,000.00
6 3 100 2% 786.04 NPV of Bond Cash Flows
1,200.00
7 4 100 4% 603.96
5 100 6% 448.39 1,000.00
8
9 6 100 8% 314.93 800.00

NPV
10 7 100 10% 200.00 600.00
11 8 1100 12% 100.65 400.00
12 14% 14.45
200.00
13 IRR 14.36% #VALUE! 16% -60.62
0.00
14 18% -126.21
-200.00 0% 2% 4% 6% 8% 10%12%14%16%18%20
15 20% -183.72
16 -400.00 Discount rate
17
 J K
O THERE IS1ONLY ONE IRR
2
3
4
5
6 Flows
NPV of Bond Cash
7
8
9
10
11
12
13
14
2% 4% 6% 8% 10%12%14%16%18%20%
15
Discount
16 rate
17
 A B C D E F G
1 FLAT PAYMENT SCHEDULES
2 Loan principal 10,000
3 Interest rate 7%
4 Loan term 6 <-- Number of years over which loan is repaid
5 Annual payment 2,097.96 #VALUE!
6
7 Split payment into:
=$B$3*C9

8 Principal
at beginning Payment at Return of
Year of year end of year Interest principal
9 1 10,000.00 2,097.96 700.00 1,397.96
10 2 8,602.04 2,097.96 602.14 1,495.82 =D9-E9
11 3 7,106.23 2,097.96 497.44 1,600.52
12 =C9-F9 4 5,505.70 2,097.96 385.40 1,712.56
13 5 3,793.15 2,097.96 265.52 1,832.44
14 6 1,960.71 2,097.96 137.25 1,960.71
15 7 0.00
 A B C D E
1 SIMPLE FUTURE VALUE
2 Interest 10%
3
Account
Interest Total in
balance,
4 Year earned account,
beginning of
during year end year
year
5 1 1,000.00 100.00 1,100.00 #VALUE!
6 2 1,100.00 110.00 1,210.00 #VALUE!
7 3 1,210.00 121.00 1,331.00
8 4 1,331.00 133.10 1,464.10
9 5 1,464.10 146.41 1,610.51 =$B$2*B5
10 6 1,610.51 161.05 1,771.56
11 7 1,771.56 177.16 1,948.72
12 8 1,948.72 194.87 2,143.59
13 9 2,143.59 214.36 2,357.95
14 10 2,357.95 235.79 2,593.74
15 11 2,593.74
=D5
16
17 A simpler way 2,593.74 #VALUE!
 A B C D E F
1 FUTURE VALUE WITH ANNUAL DEPOSITS
2 Interest 10%
3 Annual deposit 1,000 <-- Made today and at beginning of each of next 9 years
4 Number of deposits 10
5
Account
Deposit at Interest Total in
balance,
6 Year beginning earned account,
beginning of
of year during year end year
year
7 1 0.00 1,000 100.00 1,100.00 #VALUE!
8 2 1,100.00 1,000 210.00 2,310.00 #VALUE!
9 3 2,310.00 1,000 331.00 3,641.00
10 4 3,641.00 1,000 464.10 5,105.10
=$B$2*(B7+C7)
11 5 5,105.10 1,000 610.51 6,715.61
12 6 6,715.61 1,000 771.56 8,487.17
13 7 8,487.17 1,000 948.72 10,435.89
14 8 10,435.89 1,000 1,143.59 12,579.48
15 9 12,579.48 1,000 1,357.95 14,937.42
16 10 14,937.42 1,000 1,593.74 17,531.17
17
18 Future value 17,531.17 #VALUE! =E7
19
 A B C D E
1 A RETIREMENT PROBLEM
2 Interest 8%
3 Annual deposit 48,000.00
4 Annual retirement withdrawal 30,000.00
5
Account
Deposit at Interest Total in
balance,
6 Year beginning earned account,
beginning
of year during year end year
of year
7 1 0.00 48,000.00 3,840.00 51,840.00
8 2 51,840.00 48,000.00 7,987.20 107,827.20
9 3 107,827.20 48,000.00 12,466.18 168,293.38
10 4 168,293.38 48,000.00 17,303.47 233,596.85
11 5 233,596.85 48,000.00 22,527.75 304,124.59
12 6 304,124.59 -30,000.00 21,929.97 296,054.56
13 7 296,054.56 -30,000.00 21,284.36 287,338.93
14 8 287,338.93 -30,000.00 20,587.11 277,926.04
15 9 277,926.04 -30,000.00 19,834.08 267,760.12
16 10 267,760.12 -30,000.00 19,020.81 256,780.93
17 11 256,780.93 -30,000.00 18,142.47 244,923.41
18 12 244,923.41 -30,000.00 17,193.87 232,117.28
19 13 232,117.28 -30,000.00 16,169.38 218,286.66
20
Note: This problem has 5 deposits and 8 annual withdrawals, all made at the beginning of the year. The
21 beginning of year 13 is the last year of the retirement plan; if the annual deposit is correctly computed, the
balance at the beginning of year 13 after the withdrawal should be zero.
 F
LEM 1
2
3
4
5 #VALUE!

7 #VALUE!
8
9
10
11
12
13
14
15
16
17
18
19
20
made at the beginning of the year. The
nual deposit is21
correctly computed, the
rawal should be zero.
 A B C D E
1 A RETIREMENT PROBLEM
2 Interest 8%
3 Annual deposit 29,386.55
4 Annual retirement withdrawal 30,000.00
5
Account
Deposit at Interest Total in
balance,
6 Year beginning earned account,
beginning
of year during year end year
of year
7 1 0.00 29,386.55 2,350.92 31,737.48
8 2 31,737.48 29,386.55 4,889.92 66,013.95
9 3 66,013.95 29,386.55 7,632.04 103,032.54
10 4 103,032.54 29,386.55 10,593.53 143,012.62
11 5 143,012.62 29,386.55 13,791.93 186,191.10
12 6 186,191.10 -30,000.00 12,495.29 168,686.39
13 7 168,686.39 -30,000.00 11,094.91 149,781.30
14 8 149,781.30 -30,000.00 9,582.50 129,363.81
15 9 129,363.81 -30,000.00 7,949.10 107,312.91
16 10 107,312.91 -30,000.00 6,185.03 83,497.94
17 11 83,497.94 -30,000.00 4,279.84 57,777.78
18 12 57,777.78 -30,000.00 2,222.22 30,000.00
19 13 30,000.00 -30,000.00 0.00 0.00
20
Note: This problem has 4 deposits and 8 annual withdrawals, all made at the beginning of the year. This
21 means that the beginning of year 13 is the last year of the retirement plan; if the annual deposit is correctly
computed, the balance at the beginnin
 F
LEM 1
2
3
4
5 #VALUE!

7 #VALUE!
8
9
10
11
12
13
14
15
16
17
18
19
20
made at the beginning of the year. This
21 deposit is correctly
nt plan; if the annual
innin
 A B C

1
A RETIREMENT PROBLEM
Solution using formulas
2 Interest 8%
3 Annual deposit 48,000.00 5
4 Annual retirement withdrawal 30,000.00 8
5
6 Numerator 126,718.54 #VALUE!
7 Denominator 4.31 #VALUE!
8 Annual deposit 29,386.55 #VALUE!
Annual deposit 29,386.55
Annual withdrawal 30,000.00
Interest rate 8%

0 1 2 3 4 5 6

Deposits made W

Future value of deposits $186,191.10 #VALUE!

Present value of
withdrawals
to end of year 3 $186,191.10 #VALUE!
7 8 9 10 11 12 13

Withdrawals at beginning of year

 A B C D
1 MULTIPLE COMPOUNDING PERIODS
2 Initial deposit 1,000
3 Interest rate 5%
4 Number of compounding periods per year 2
5 Interest per compounding period 2.500% #VALUE!
6 Accretion in one year 1,050.625 #VALUE! 1050.625
7 Continuous compounding with Exp 1,051.271 #VALUE! 1051.271
E n d -year accretio n

8
9
10
11
Effect of Multiple Compounding Periods
12 1,051.500
13
14 1,051.000
15
16 1,050.500
17
18 1,050.000
19
20 1,049.500
21 Number of compounding intervals
22 1,049.000
1 10 100 1000
23
End-year
24 Compounding periods per year
accretion
25 1 1,050.000 #VALUE!
26 2 1,050.625 #VALUE!
27 10 1,051.140
28 20 1,051.206
29 50 1,051.245
30 100 1,051.258
31 150 1,051.262
32 300 1,051.267
33 800 1,051.269
 E
1
2
3
4
5
6
7 0.646096376
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
 A B C D
1 CONTINUOUS DISCOUNTING
2 Interest 8%
3

4
Continously
Year Cash flow discounted PV
5 1 100 92.31 #VALUE!
6 2 200 170.43 #VALUE!
7 3 300 235.99
8 4 400 290.46
9 5 500 335.16
10
11 Present value 1,124.35 #VALUE!
 A B C D
1 CALCULATING RETURNS FROM PRICES
2 Initial deposit 1,000
3 End-of-year value 1,200
4 Number of compounding periods 2
5 Implied annual interest rate 19.09% #VALUE!
6
7 Continuous return 18.23% #VALUE! #DIV/0!
8

9
Implied annual interest rate with n compounding periods
10 Number of compounding periods Rate
11 19.09% #VALUE!
12 1 20.00%
13 2 19.09%
14 4 18.65%
15 8 18.44%
16 20 18.32%
17 1000 18.23%
 A B C

USING XIRR TO COMPUTE THE

1 ANNUALIZED INTERNAL RATE OF
RETURN
2 Date Cash flow
3 1-Jan-06 -1,000
4 3-Mar-06 150
5 4-Jul-06 100
6 12-Oct-06 50
7 25-Dec-06 1,000
8
9 IRR 37.19% #VALUE!
 A B C

1
USING XNPV TO COMPUTE THE NET
PRESENT VALUE
2 Annual discount rate 12%
3
4 Date Cash flow
5 1-Jan-06 -1,000
6 3-Mar-07 100
7 4-Jul-07 195
8 12-Oct-08 350
9 25-Dec-09 800
10
11 Net present value 16.80 #VALUE!
12
Note that XNPV has a different syntax from NPV !
13 XNPV requires all the cash flows, including the initial cash flow,
whereas NPV assumes that the first cash flow occurs one period
hence.