Chapter 01

# Chapter 01 - A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18...

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Discount rate 10% Discount rate 10% Present value \$379.08 <-- =NPV(B2,B7:B11) Net present value -20.92 <-- =G7+NPV(G2,G8:G12) Cash Cash Year flow Year flow 1 100 0 -400 2 100 1 100 3 100 2 100 4 100 3 100 5 100 4 100 5 100 IRR 7.931% <-- =IRR(B19:B24) LOAN TABLE Division of payment NPV -20.92 between interest Cash Principal Payment and return of principal Year flow at beginning at end 0 -400 Year of year of year Interest Principal 1 100 1 400.00 100 31.72 68.28 2 100 2 331.72 100 26.31 73.69 3 100 3 258.03 100 20.46 79.54 4 100 4 178.50 100 14.16 85.84 5 100 5 92.65 100 7.35 92.65 =\$B\$15*F20 =G20-H20 =F20-I20 =-B19 A B C D E F G H I J K 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

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Cost 1000 IRR? 24.44% LOAN TABLE Division of payment between interest Principal Payment and return of principal at beginning at end Year of year of year Interest Principal 1 1000.00 300 244.36 55.64 2 944.36 200 230.76 -30.76 3 975.13 150 238.28 -88.28 4 1063.41 600 259.86 340.14 5 723.26 900 176.74 723.26 6 0.00 Direct calculation of IRR Year Cash flow 0 -1000 1 300 2 200 3 150 4 600 5 900 IRR 24.44% <-- =IRR(B23:B28) =\$B\$3*B11 =C11-D11 =B11-E11 =B2 A B C D E F G 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
MULTIPLE INTERNAL RATES OF RETURN Discount rate 6% NPV -3.99 <-- =NPV(B3,B9:B13)+B8 DATA TABLE Discount Cash rate NPV Year flow -3.99 0 -145 0% -20.00 1 100 3% -10.51 2 100 6% -3.99 3 100 9% 0.24 4 100 12% 2.69 5 -275 15% 3.77 18% 3.80 21% 3.02 24% 1.62 27% -0.24 30% -2.44 33% -4.90 36% -7.53 39% -10.27 to create data tables in Excel see Chapter 26. Identifying the two IRRs First IRR 8.78% <-- =IRR(B8:B13,0) Second IRR 26.65% <-- =IRR(B8:B13,0.3) discount rate on NPV. Year Cash flow

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Chapter 01 - A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18...

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