Basic Financial Calculations MGT 4850 Spring 2009 University of Lethbridge

Topics Net Present Value Internal Rate of Return Future Value Pension and accumulation problem Continuously Compounded Interest

PV and NPV Discount rate10% Present value$379.08<-- =NPV(B2,B7:B11) Cash Yearflow

Exact NPV problem in Excel Discount rate10% Net present value-20.92<-- =G7+NPV(G2,G8:G12) Cash Yearflow

IRR 7.931%<-- =IRR(B19:B24) NPV For discount rate 10% Cash Yearflow

COMPUTING THE VALUE OF A GROWING INFINITE ANNUITY Please, recall the Dividend Growth Model (p.9 bottom)

INTERNAL RATE OF RETURN NPV of a project set to 0, discount rate that makes future cash flow equal the initial investment

USING THE IRR IN A LOAN TABLE (p.12) Recall loan amortization

USING A LOAN TABLE TO FIND THE IRR Goal seek is under the Tools Menu (Data>What if analysis> Goal Seek.

Loan amortization

Loan amortization 2

1 step calculate IRR

Multiple Internal Rates of Return Discount rate6% NPV-3.99<-- =NPV(B3,B9:B13)+B8 Cash Yearflow

Multiple Internal Rates of Return

Bond Cash Flow

Loan Amortzation

Future Value Problems (p.19)

FV (p. 20)

Annuity problems (p. 22)

Compounding periods Continuous compounding (p.26)

Continuous discounting

Continuous Return

Table Type in the first column # compounding periods Header of the second column = cell with interest rate Highlight the table area Activate the command Data What if analysis/Tab le

Dated Cash Flows XIRR – for IRR p 30 XNPV – p.31