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1 Compute NPV
1.2 Compute IRR
1.3 Loan Table
1.4 Use Excel's GOAL SEEK and a Loan Table to find the IRR of an investment.
1.5 Multiple IRRs
1.6 Retirement problem
1.7 Solver for capital budgeting
Example 1.1: Compute the NPV of an investment that costs $21,000. It pays $3,000 at the end of the first year. The payout gro
of 5% per year over the next 5 years and then at a rate of 4% per year over the following 5 years. Compute the NPV of the inve
the opportunity cost for an investment like this is 12%.
Discount R 12%
Growth Rate1 5%
Growth Rate2 4%
IRR 12.57% #VALUE!
NPV at IRR $ - #VALUE!
Principal at Payment
the at the
beginning of end of
0 $ (21,000) Year the year the year Interest paid
1 $ 3,000 1 $ 21,000 $ 3,000 $ 2,639
2 $ 3,150 #VALUE! 2 $ 20,639 $ 3,150 $ 2,594
3 $ 3,308 3 $ 20,083 $ 3,308 $ 2,524
4 $ 3,473 4 $ 19,299 $ 3,473 $ 2,425
5 $ 3,647 5 $ 18,251 $ 3,647 $ 2,293
6 $ 3,829 #VALUE! 6 $ 16,898 $ 3,829 $ 2,123
7 $ 3,982 #VALUE! 7 $ 15,192 $ 3,982 $ 1,909
8 $ 4,141 8 $ 13,120 $ 4,141 $ 1,649
9 $ 4,307 9 $ 10,627 $ 4,307 $ 1,335
10 $ 4,479 10 $ 7,656 $ 4,479 $ 962
11 $ 4,658 11 $ 4,138 $ 4,658 $ 520
ous example = Rate of return paid by the investment.
a rate of 5% per year over the next 5 years and
like this is 12%.)
Principal at
Principal the end of
paid the year
$ 361 $ 20,639
$ 556 $ 20,083
$ 784 $ 19,299
$ 1,048 $ 18,251
$ 1,353 $ 16,898
$ 1,705 $ 15,192
$ 2,073 $ 13,120
$ 2,493 $ 10,627
$ 2,971 $ 7,656
$ 3,517 $ 4,138
$ 4,138 $ (0)
Example 1.4: Use Excel's GOAL SEEK with a Loan Table to find the IRR of an investment.
The initial investment in a project is $1,000,000. The estimted cash flows are $300,000 per year over the next five years.
IRR 15.24%
-100.0 Ex1.5
-150.0
100.0
50.0
0.0
0% 10% 20% 30% 40% 50% 60% 70% 80%
A B C D E F G H I
31 -50.0
32
33 -100.0
34
35 -150.0
Ex1.5
Example 1.6: A RETIREMENT PROBLEM -- You are 55 years old and intend to retire at 60. You are starting a retirement a/c now
starting today and at the beginning of each of the next 4 years. You anticipate living 8 more years after retirement. You'd like t
beginning of each of those 8 years. Every year your account will earn 8% per year. How much do you need to deposit?
Interest 8%
Annual Deposit $ 29,387
Annual Withdrawal upon Retirement $ 30,000
---------------- C o s t ---------------
NPV Year 1 Year 2 Year 3 Undertake
Project 1 85 30 14 7 1
Project 2 69 35 17 7 0
Project 3 130 46 26 20 0
Project 4 116 40 20 12 1
Project 5 70 31 16 8 1
Project 6 140 42 29 22 1
Project 7 93 30 17 8 1
Project 8 57 30 16 6 0
Project 9 53 28 15 5 0
Project 10 93 25 5 5 1