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Chapter_09

# Chapter_09 - Ross Westerfield and Jordan's Spreadsheet...

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by Brad Jordan and Joe Smolira Version 9.0 Chapter 9 (Beta In these spreadsheets, you will learn how to use The following conventions are used in these spr 1) Given data in blue 2) Calculations in red NOTE: Some functions used in these spreadsheets may the "Analysis ToolPak" or "Solver Add-In" be installed in To install these, click on the Office button then "Excel Options," "Add-Ins" and select "Go." Check "Analysis ToolPak" and Ross, Westerfield, and Jordan's Spreadsheet Master Fundamentals of Corporate Finance, 9th edition NPV XNPV AND ABS MAX COUNTIF IRR XIRR MIRR AVERAGE

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a) e the following Excel functions: readsheets: y require that n Excel.

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Chapter 9 - Section 1 Net Present Value Suppose we have a project with the following cash flows and required return. What is the N t Cash flow 0 \$(30,000) 1 8,000 2 10,000 3 11,000 4 17,000 5 12,000 Return: 12% NPV: \$10,557.31 RWJ Excel Tip To calculate the NPV of the project using the NPV function, we entered the following: We previously used the net present value function to find the present value of unequal cas all outflows, plus the present value of all inflows. Unfortunately, as we will see, computer p

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NPV and Cash Flows at Irregular Intervals t Cash flow 2/23/2009 \$(50,000) 8/24/2009 14,000 3/5/2010 8,000 11/2/2010 23,000 6/5/2011 18,000 12/18/2011 19,000 Return: 11% NPV: \$18,107.66 RWJ Excel Tip To calculate the NPV of the project using the XNPV function, we entered the following: With the XNPV function, you need to include the first cash flow. The NPV of the cash flows Notice one very important thing: We did not include the cash flow at time 0 in the NPV func did not truly create a function that calculated the NPV, but rather created a function that ca cash flows, we use the NPV function to calculate the present value of the cash flows beyon simply go to the NPV cell above. The NPV function does not really calculate the NPV of a set of cash flows, and it also has flows occur at regular intervals. If the cash flows occur at irregular intervals, we need to us date for each cash flow. Suppose we have the following set of cash flows and required retu
NPV of the project? sh flows. Now, you know exactly what net present value means: The present value of programmers don't understand net present value.

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will be on the date of the first cash flow. ction. The reason is simple. When the programmers created the NPV function, they alculated the present value of cash flows. So, to calculate the NPV of a series of nd time 0, then add the cash flow at time zero to the result. To see how we did this, a potential problem in that the implicit assumption used by Excel is that the cash se the XNPV function. The XNPV function has an additional argument, namely the urn. What is the NPV of the cash flows?
Chapter 9 - Section 2 The Payback Rule Suppose we have a project with the following cash flows. What is the payback period for the t Cash flow 0 \$(30,000) 1 8,000 2 10,000 3 11,000 4 17,000 5 12,000 Maximum payback (years): 3 In the first method, we will calculate the cumulative cash flows for the project by simply add t 0 \$(30,000) 1 (22,000) 2 (12,000) 3 (1,000) 4 16,000 5 28,000 t 0 1 0.000 2 0.000 3 0.000

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