ISyE 313 Spring17

Excel instruction

Excel Functions
NPV (Net Present Value)

Calculates the net present value of a series of future cash flows at a stated interest
rate.
= NPV(rate, series)
Rate: Interest rate per compounding period.
Series:
Series of costs and incomes set up in a range of cells in the
spreadsheet.
Important: 1) Any cash flow at time zero is already in present value. Therefore, do
not include it in series rather add it later to the result.
2) Any year with a zero cash flow must have a 0 entered to ensure a correct result.
3) PV function can also be used, depending on how your cash flows are set up it
might be more convenient than NPV. (=PV(rate, nper, pmt, fv)

PMT (Payments)

Calculates equivalent periodic amounts based on present value and/or future values
at given interest rate. Note: it might be necessary to add a minus sign in front of the
function for an accurate answer.
= PMT(rate, nper, pv, fv)
Rate: Interest rate per compounding period.
Nper: Total number of periods.
Pv:
Present value.
Fv:
Future value

IRR (Internal Rate of Return)

Calculates the internal rate of return for a series of cash flows at regular periods.
= IRR(series)
Series:
All the cash flows for which the rate of return will be calculated.
Important: 1) Series must include cash flow at time zero.
2) Any year with a zero cash flow must have a zero entered to ensure that the value
is correctly maintained for computation purposes.
3) RATE function can also be used, depending on how cash flows are set up it might
be the better option. (=RATE(nper, pmt, pv, fv)

Types of problems you might encounter and how to solve

using Excel
1. Developing After-tax cash flow (ATCF) and analysis
a. First set up before-tax cash flow using operating expenses, revenues,
initial cost, salvage values, study period, etc.
b. Develop depreciation schedule based on asset classification and
depreciation type
c. Compute taxable income in each time period, considering capital
gains, losses, or depreciation recapture
d. Compute taxes paid (or tax savings if taxable income is negative)
based on tax rate.
e. Develop after-tax cash flow
f. Perform economic analysis using PW, AW, ROR, etc.

ISyE 313 Spring17

Excel instruction
2. Sensitivity Analysis
a. Vary parameters based on percent change or range of estimates
b. Compute measure of worth based on range of parameters
c. Compare sensitivity of parameter and make conclusions regarding
analysis
3. Problems using solver to find an optimal solution (Ex. Capital Budget, solve
for A, P, or F)
a. Set up cash flows using parameters given in problem
b. Develop a relation or function to model what you are trying to optimize
c. Open solver and enter the correct cell
references
Set Objective: enter cell
reference for the function
4.
you are trying to optimize
or set to a certain value
(ex. IRR = 15%, or EUAC =
$5,000, or maximize PW)
To: Set equal to a specific
value or minimize or
maximize (note: if
minimizing or maximizing
make sure to double
check. Would you really
want to maximize EUAC?)
By Changing Variable
Cells: The parameter that
will be changing when you
optimize your objective
(note: this proves the
benefit of using cell
references when possible)
Subject to the
Constraints: Set up
inequalities to model
budget limitations, or use
binary constraint to model
yes or no scenarios
Solving Method: GRG
Replacement Analysis (Ex. Challenger vs. Defender, when is optimal time to
replace)
a. Set up cash flows for both Challenger and Defender
i. Be aware of how many years Defender has already been owned
b. In the Defender cash flow, consider what you get for selling the
challenger in year 0
c. Perform economic analysis by computing PW or AW of both options
(AW if useful lives differ).

ISyE 313 Spring17

Excel instruction
d. Choose to keep Defender for another year, or replace with Challenger
based on analysis
5. Expected Value calculations
a. Set up spreadsheet to show potential options and their respective
probabilities
b. Calculate expected costs or revenues using respective probabilities
c. Calculate measure of worth based on expected values, select best
alternative
Note: This is not an exhaustive list but rather an overview of the different types of
problems we have learned in Excel. Anything covered in class would be fair to be
included on the final.