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# ANALYSIS FOR FINANCIAL MANAGEMENT

10TH Edition
Robert C. Higgins

Chapter 7

A brief tutorial on Excel financial functions (problems to follow)
You may find the following Excel, built-in financial functions helpful when analyzing the problems below. (To
access these functions, select Insert, Functions, and choose Financial.)
=PV(rate, nper, pmt, fv, type) returns the present value of a series of cash flows.
=FV(rate, nper, pmt, pv, type) returns the future value of a series of cash flows.
=PMT(rate, nper, pv, fv, type) calculates the periodic payment for a loan based on constant payments and a
constant interest rate.
=NPER(rate, pmt, pv, fv, type) returns the number of periods for an investment based on periodic, constant
payments and a constant interest rate.
=NPV(rate, range) returns the net present value of an investment based on a discount rate and a series of
future payments (negative values) and income (positive values). (Warning: By convention, NPV
calculates the net present value one period before the first cash flow.)
=IRR(range, guess) returns the internal rate of return for a series of cash flows.
In these functions,
rate = the discount, or interest rate.
nper = number of periods.
pmt = annual uniform payment.
fv = future value, or future cash flow.
type is a logical value allowing you to specify if cash flows occur at the end or the beginning of the period. A
value of 1 indicates beginning of period, 0 or omitted indicates end of period.
pv = present value.
range = the cells on your spreadsheet containing the cash flows you want to analyze. For example, if the cash
flows are in the first 10 rows of column A, the entry for range would be a1:a10.
guess = your guess as to the internal rate of return. This helps the computer get started and may be left blank.
An example Suppose you want to know the present value of \$100 per year for 19 years and \$500 at the end of the
19th year when the interest rate is 13 percent.
Select a spreadsheet cell and enter =PV(0.13,19,100,500). Excel will return (\$742.83). This is the amount one
should be willing to pay today to receive the indicated stream of cash flows when the interest rate is 13 percent.

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