Unformatted text preview: e Sign to Reflect Money
Going Out of Herby’s Pocket (All the
numbers were positive reflecting money going to
bankers)
bankers)
Now I Have the
3rd Cash Flow to
Analyze Copy My Third Cash Flow
(I’m going to Paste into Class
Assistant)
Assistant) The Values are Pasted into
Class Assistant
Class What Interest Rate to Use
What We’ve looked at what peoples marginal
We’ve
rate of interest may be
rate We’ve looked at feeling around with
We’ve
NPVs using different interest rates to see
what happens
what Another tool is the IRR Internal Rate of Return
It is the interest rate that makes NPV zero The IRR
The The IRR is popular because it tells you
The
what interest rate the investment makes
what Can make complicated cash flow into an interest
Can
rate like is posted at a bank
rate Very simple flows have a formula for
Very
IRR but most cash flow IRRs are
computed iteratively until the NPV is 0
computed The way financial calculators do it
The Excel has an IRR function that works same way. Where going to do manual iteration this time Lets Try 2%
Lets
rest Rate as a %, but do not use the % key during data entry
mpounding periods in one year
12
0.001666667 (in decimal form) 2 Cash Flow Evaluation Index Values
(Warning IRR and Payback may not function properly on unconventional cash flows)
NPV
930.69482 A Positive NPV indicates too low a guess Lets Try 6%
Lets
est Rate as a %, but do not use the % key during data entry
mpounding periods in one year
12
0.005 (in decimal form) 6 Cash Flow Evaluation Index Values
(Warning IRR and Payback may not function properly on unconventional cas
NPV
5...
View
Full
Document
This note was uploaded on 02/02/2013 for the course ECON 361 taught by Professor Paulbradley during the Spring '13 term at SIU Carbondale.
 Spring '13
 paulbradley
 Economics

Click to edit the document details