ACOT Intro/Copyright Succeeding in Business with Microsoft Excel 20101

Course Learning Outcomes Upon completion of this course, students will be able to: Navigate online computer platforms to acquire and distribute information. Apply Excel skills and tools in business problem solving. Solve problems with statistical analysis tools. Apply logic in decision making. Retrieve data for computation, analysis, and reference. Evaluate the financial impact of loans and investments. Organize data for effective analysis. Apply data tables and excel scenarios for what-if analysis. Synthesize smart worksheets. Enhance decision making with Solver. Succeeding in Business with Microsoft Excel 20102

Roadmap Chapter 6 Evaluating the Financial Impact of Loans and Investments Succeeding in Business with Microsoft Excel 20103

Chapter Objectives Succeeding in Business with Microsoft Excel 20104

Understanding How Interest Is Calculated Factors that can affect interest – How long do you want to borrow the money? – What level of risk is the lender assuming in lending the money? – What are the current monetary policies and levels of supply and demand to borrow versus lend money? Ways interest is accounted for – Simple interest – Compound interest Succeeding in Business with Microsoft Excel Level 1 home

Calculating Simple Interest Paid solely on the amount of the original principal value Simple interest = Principal * Interest rate per time period * Number of time periods Succeeding in Business with Microsoft Excel Level 1 home

Calculating Compound Interest Adding interest earned each period to the principal for purposes of computing interest for the next period Has greater total value than simple interest Used by most financial institutions Annual percentage yield (APY) – Equivalent yearly simple interest rate, taking compounding into account Annual percentage rate (APR) – Reflects interest being paid on actual amount borrowed Succeeding in Business with Microsoft Excel Level 1 home

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Reviewing Alternative Financing Options Excel’s financial functions perform calculations to help determine the most feasible financing option – PMT – RATE – NPER – PV – FV Succeeding in Business with Microsoft Excel Level 1 home

Using the PMT Function to Determine a Loan Payment Finds value of payment per period, assuming are constant payments and constant interest rate for duration of loan PMT(rate,nper,pv,fv,type) Succeeding in Business with Microsoft Excel Level 1 home

Arguments of the PMT Function rateInterest rate per compounding period nperNumber of compounding periods pvPresent value fvFuture value (compounded amount) typeDesignates when payments are made Type 0 – end of period Type 1 – beginning of period Succeeding in Business with Microsoft Excel Level 1 home

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Understanding Cash Flow (Inputs And Outputs) Succeeding in Business with Microsoft Excel Level 1 home

Specifying Consistent Units of Time Financial functions apply the interest rate per period and the payment per period to the principal value over a specified number of periods Succeeding in Business with Microsoft Excel Level 1 home

Determining the Value of the Loan Payment Succeeding in Business with Microsoft Excel Level 1 home

Using a Financial Function with Cell Referencing Succeeding in Business with Microsoft Excel Level 1 home

Using the RATE, NPER, PV, and FV Functions Succeeding in Business with Microsoft Excel Level 1 home

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Determining the Future Value of a Financial Transaction Succeeding in Business with Microsoft Excel Level 1 home

Determining the Present Value of a Financial Transaction Succeeding in Business with Microsoft Excel Level 1 home

Determining the Interest Rate of a Financial Transaction Succeeding in Business with Microsoft Excel Level 1 home

Determining the Number of Periods of a Financial Transaction Succeeding in Business with Microsoft Excel Level 1 home

Writing Formulas for Other Loan Options Down payment Adjust present value (pv) to reflect exact value of the loan Balloon payment Specify negative future value (fv) Mortgage fees Adjust the pv of the loan by subtracting the fees from the loan amount Recalculate the interest rate using the same payments and loan periods, with the new pv amount Succeeding in Business with Microsoft Excel Level 1 home

Selecting a Financing Option Succeeding in Business with Microsoft Excel Level 1 home

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Designing the Cash Flow Estimate of a Worksheet Amount of money coming in or out of a company each year Combination of revenues and expenses with the effects of required capital investment and financing Succeeding in Business with Microsoft Excel Level 2 home

Identifying the Missing Data Elements Depreciation is the process by which a company spreads the expense of an asset over its useful life. Succeeding in Business with Microsoft Excel Level 2 home

Identifying the Missing Data Elements Succeeding in Business with Microsoft Excel Level 2 home

Setting Up an Amortization Table Standard method of detailing a loan transaction Lists, for each specific loan period, the remaining principal and the value of the payment apportioned to interest expense and to principal pay down Succeeding in Business with Microsoft Excel Level 2 home

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Calculating Principal and Interest Payments IPMT function – Calculates the value of the interest payment for a specified period – IPMT(rate,per,nper,pv,fv,type) PPMT function – Calculates the value of the principal payment for a specified period – PPMT(rate,per,nper,pv,fv,type) Succeeding in Business with Microsoft Excel Level 2 home

Arguments of the PPMT and IPMT Functions rateInterest rate per period perPeriod for which interest or principal amount will be calculated nperTotal number of periods in the financial transaction pvValue at the beginning of the financial transaction fvValue at the end of the financial transaction typePayment type of 0 or 1 (made at beginning or end of each period, respectively) Succeeding in Business with Microsoft Excel Level 2 home

Succeeding in Business with Microsoft Excel Level 2 home

Succeeding in Business with Microsoft Excel Level 2 home

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Calculating Principal and Interest Payments Between Two Periods CUMIPMT function – Automatically calculates interest values between two periods – CUMIPMT(rate,nper,pv,start_period, end_period,type) CUMPRINC function – Automatically calculates principal values between two periods – CUMPRINC(rate,nper,pv,start_period, end_period,type) Succeeding in Business with Microsoft Excel Level 2 home

Calculating Principal and Interest Payments Between Two Periods Succeeding in Business with Microsoft Excel Level 2 home

Calculating Principal and Interest Payments Between Two Periods Succeeding in Business with Microsoft Excel Level 2 home

Calculating Principal and Interest Payments Between Two Periods Succeeding in Business with Microsoft Excel Level 2 home

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Calculating Depreciation Using the SLN Function Straight line depreciation method – Approximation of actual depreciation allowed by the tax code – Allocates value of an asset evenly throughout the life of the asset =SLN(cost,salvage,life) – Cost – Initial cost of the asset – Salvage – Value at the end of depreciation – Life – Number of periods over which the asset is depreciated Succeeding in Business with Microsoft Excel Level 2 home

Calculating Depreciation Using the SLN Function Succeeding in Business with Microsoft Excel Level 2 home

Alternative Depreciation Options Provided in Excel Succeeding in Business with Microsoft Excel FunctionDefinitionSyntax Double-declining balance Computes depreciation at an accelerated rate DDB(cost,salvage,life, period,factor) Sum of the years digits Depreciation apportioned based on declining fractional amount of asset’s life SYD(cost,salvage,life, per) Fixed-declining balance Returns depreciation of asset for a specified period using fixed-declining balance method DB(cost,salvage,life, period,month) Variable-declining balance Returns depreciation of asset for a specified period using double-declining balance method VDB(cost,salvage,life, start_period,end_period, factor,no_switch) Level 2 home

Calculating Taxes Succeeding in Business with Microsoft Excel Level 2 home

Completing the Analysis Succeeding in Business with Microsoft Excel Level 2 home

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Setting Up a Worksheet to Analyze Profitability Succeeding in Business with Microsoft Excel Level 3 home

Calculating Net Present Value (NPV) Uses expected cash flows and applies a minimum rate of return (hurdle rate) to discount these cash flows into current (present) value dollars Enables you to see current worth of projected cash flows NPV(rate,value1,value2,…) Has several requirements Succeeding in Business with Microsoft Excel Level 3 home

Setting Up a Table of Hurdle Rates Succeeding in Business with Microsoft Excel Level 3 home

Calculating the Internal Rate of Return (IRR) Considers the cash flows and discounts them back to the present value Calculates rate at which the discounted cash flows in and out are equal IRR(values,guess) Succeeding in Business with Microsoft Excel Level 3 home

Calculating the Internal Rate of Return (IRR) Succeeding in Business with Microsoft Excel Level 3 home

Creating a Chart Showing the Hurdle Rate Versus NPV Succeeding in Business with Microsoft Excel Level 3 home

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Return on Investment (ROI) Sum of the cash flows, excluding initial investment, divided by the investment value Succeeding in Business with Microsoft Excel Level 3 home

Determining the Payback Period Payback period – Time it will take to earn sufficient profits so the loan can be paid back Payback year – Year in which cumulative total cash flow is greater than or equal to $0 Succeeding in Business with Microsoft Excel Level 3 home

Low Capital Option Succeeding in Business with Microsoft Excel

Evaluating the Results of the Analysis Succeeding in Business with Microsoft Excel Level 3 home

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Chapter Summary Calculating the values for simple financial transactions Creating a projected cash flow estimate and amortization table Evaluating the financial viability of alternative project options Succeeding in Business with Microsoft Excel

Chapter Objectives Succeeding in Business with Microsoft Excel