NPV

Consider the cash flow given below. The interest rate is 5%. calculate the PV of each payment in the neighbouring cell and fi
Also calculate NPV by using NPV function and verify that it matches with the sum of all PVs.

Further a range of interest rates is given below. Calculate the NPV correspondig to each of these and plot a graph showing h

Interest Rate 5%

Year Payment at
end of year Present Value
0 -800
1 100
2 150
3 200
4 250
5 300

Present value of all payments

Present value returned by

Excel's NPV function

Interest Rate NPV

0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
16%

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 NPV

ment in the neighbouring cell and find the sum of all PVs.

these and plot a graph showing how NPV varies with interest rates

Paste the Graph here

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 NPV, IRR

There are two projects (A and B) available to you for investment. If the current market rate is 12%, which one will you prefe

1) NPV
2) IRR

CHOOSING BETWEEN PROJECTS

Interest rate 12%

Year Project A Project B

0 -500 -500
1 100 250
2 100 250
3 150 200
4 200 100
5 400 150

NPV

IRR

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 NPV, IRR

rate is 12%, which one will you prefer on the basis of

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 XIRR, XNPV

Uptil now you have seen that NPV and IRR functions work only when the cash flow occurs at regular intervals.
If you are faced with a general situation where payments occur at unequal intervals, then 'X'
versions of these functions bail you out.

USING IRR, XIRR and XNPV Functions

Interest Rate 15%

Year Payment Dates Payment
0 -10000 1/1/1998 -10,000
1 1500 1-Jul-99 3,000
2 1500 1-Feb-00 3,000
3 1500 1-Jun-01 3,000
4 1500 1-Mar-02 3,000
5 1500 1-Aug-03 3,000
6 1500 1-Oct-04 3,000
7 1500 1-Sep-05 3,000
8 1500 1-May-06 3,000
9 1500 1-Dec-07 1,000
10 1500 1-Jan-08 3,000

XIRR
IRR XNPV

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 XIRR, XNPV

s at regular intervals.

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 Goal Seek

Find the roots of "x^2+3x+2" using GoalSeek tool

Root Give the initial value in this cell

x^2+3x+2

Root Initial guess

x^5-2x+100

You want to borrow $100,000. You want to take 180 months to pay off the loan, and you can afford p
month.

100000
180
rate
EMI

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 Goal Seek

Give the initial value in this cell

off the loan, and you can afford payments of $900 per

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 Cross over rate

Consider two projects whose cashflows are given below.

(a) Find the NPV at the market rate of 5% and IRR of the two projects?
(b) Do the recomendations on the basis of NPV and IRR conflicts?
(c) Compute the crossover rate, that is the rate for which NPV of project A is equal to the NPV of project B.
(d) For what rates the NPV and IRR recommendations agree?

Year Project A Project B

0 -100 -150
1 30 42
2 30 42
3 30 42
4 30 42 Find the Crossover Rate using Go
5 30 42
NPV
IRR

Rate Project A Project B

1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%

Page 9
 Cross over rate

V of project B.

Rate
Find the Crossover Rate using Goal Seek NPV(A)
NPV(B)
Difference

Page 10