A

1
INTERNAL RATE OF RETURN
2 Discount rate
22%
3
4 Year
Cash flow
5
0
-800
6
1
200
7
2
250
8
3
300
9
4
350
10
5
400
11
12 Net present value (NPV)
0.00 <-- =B5+NPV(B2,B6:B10)
13
22%

INTERNAL RATE OF RETURN

1
Cash flow
2
Year
-800
3
0
4
1
200
5
2
250
6
3
300
7
4
350
8
5
400
9
10 Internal rate of return
22.16% <-- =IRR(B3:B8)
11
12 USING THE IRR IN A LOAN TABLE
Investment at
beginning of
Cash flow
year
at end of year
13
Year
14
1
800.00
200.00
15
2
777.28
250.00
16
3
699.53
300.00
17
4
554.55
350.00
18
5
327.44
400.00
19
6
0.00
20
21
22 Can We find IRR by using Loan Table?
23
24

interest
Income
177.28
172.25
155.02
122.89
72.56

Return of
principal
22.72
<-- =C14-D14
77.75
144.98
227.11
327.44

1
2
3
4
5

USING EXCEL'S RATE FUNCTION TO

COMPUTE THE IRR USING Rate
Formula
Initial investment
Periodic cash flow
Number of payments
IRR

1,000
100
30
9.307% <-- =RATE(B4,B3,-B2)

A
1
2 Discount rate
3 NPV

MULTIPLE INTERNAL RATES OF RETURN

6%
-3.99 <-- =NPV(B2,B7:B11)+B6

4
5
Year
Cash flow
6
0
-145
7
1
100
8
2
100
9
3
100
10
4
100
11
5
-275
12
13 Identifying the two IRRs
14 First IRR
8.78%
15 Second IRR
26.65%
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40

DATA TABLE
Discount
rate
NPV
0%
-20.00
1%
-16.46
2%
-13.30
3%
-10.51
4%
-8.04
5%
-5.87
6%
-3.99
7%
-2.35
8%
-0.95
9%
0.24
10%
1.23
10.00
11%
2.05
5.00
12%
2.69
13%
3.19
0.00
14%
3.54
0%
10%
15%
3.77
-5.00
16%
3.89
-10.00
17%
3.89
18%
3.80
-15.00
19%
3.62
20%
3.36
-20.00
21%
3.02
-25.00
22%
2.61
23%
2.15
24%
1.62
25%
1.05
26%
0.43
27%
-0.24
28%
-0.94
29%
-1.67
30%
-2.44
31%
-3.24
32%
-4.05
33%
-4.90
34%
-5.76
35%
-6.63

RETURN

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40

NPV

20%

30%

40%
NPV

A
1
2
3
4
5
6

7
8
9
10
11
12
13
14

FLAT PAYMENT SCHEDULES

Loan principal
Interest rate
Loan term
Annual payment

10,000
7%
6 <-- Number of years over which loan is repaid
2,097.96 <-- =PMT(B3,B4,-B2)

Year
1
2
3
4
5
6
7

Principal
at beginning
of year
10,000.00
8,602.04
7,106.23
5,505.70
3,793.15
1,960.71
0.00

Payment at
end of year
2,097.96
2,097.96
2,097.96
2,097.96
2,097.96
2,097.96

Interest
700.00
602.14
497.44
385.40
265.52
137.25

Return of
principal
1,397.96
1,495.82
1,600.52
1,712.56
1,832.44
1,960.71

SIMPLE FUTURE VALUE

1
2 Interest
3
Year

C
10%

Account
Interest
balance,
earned
beginning of
during year
year
1,000.00
100.00
1,100.00
110.00
1,210.00
121.00
1,331.00
133.10
1,464.10
146.41
1,610.51
161.05
1,771.56
177.16
1,948.72
194.87
2,143.59
214.36
2,357.95
235.79
2,593.74

4
5
1
6
2
7
3
8
4
9
5
10
6
11
7
12
8
13
9
14
10
15
11
16
17 A simpler way

Total in
account,
end year
1,100.00
1,210.00
1,331.00
1,464.10
1,610.51
1,771.56
1,948.72
2,143.59
2,357.95
2,593.74

2,593.74 <-- =B5*(1+B2)^10

1
FUTURE VALUE WITH ANNUAL DEPOSITS
2 Interest
10%
3 Annual deposit
1,000 <-- Made today and at beginning of each of next 9 years
4 Number of deposits
10
5
Account
Deposit at
Interest
Total in
balance,
Year
beginning
earned
account,
beginning of
of year
during year
end year
6
year
7
1
0.00
1,000
100.00
1,100.00 <-- =C7+D7+B7
8
2
1,100.00
1,000
210.00
2,310.00 <-- =C8+D8+B8
9
3
2,310.00
1,000
331.00
3,641.00
10
4
3,641.00
1,000
464.10
5,105.10
=$B$2*(B7+C7)
11
5
5,105.10
1,000
610.51
6,715.61
12
6
6,715.61
1,000
771.56
8,487.17
13
7
8,487.17
1,000
948.72
10,435.89
14
8
10,435.89
1,000
1,143.59
12,579.48
15
9
12,579.48
1,000
1,357.95
14,937.42
16
10
14,937.42
1,000
1,593.74
17,531.17
17
=E7
18 Future value
17,531.17 <-- =FV(B2,B4,-B3,,1)
19

A
1
2 Interest
3 Annual deposit
4 Annual retirement withdrawal
5
Year
6
7
8
9
10
11
12
13
14
15
16
17
18
19

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

A RETIREMENT PROBLEM
8%
29,386.55
30,000.00
Account
Deposit at
Interest
balance,
beginning
earned
beginning
of year
during year
of year
0.00
29,386.55
2,350.92
31,737.48
29,386.55
4,889.92
66,013.95
29,386.55
7,632.04
103,032.54
29,386.55
10,593.53
143,012.62
29,386.55
13,791.93
186,191.10 -30,000.00
12,495.29
168,686.39 -30,000.00
11,094.91
149,781.30 -30,000.00
9,582.50
129,363.81 -30,000.00
7,949.10
107,312.91 -30,000.00
6,185.03
83,497.94 -30,000.00
4,279.84
57,777.78 -30,000.00
2,222.22
30,000.00 -30,000.00
0.00

Total in
account,
end year
31,737.48
66,013.95
103,032.54
143,012.62
186,191.10
168,686.39
149,781.30
129,363.81
107,312.91
83,497.94
57,777.78
30,000.00
0.00

EM

F
1
2
3
4
5

6
7 <-- =C7+D7+B7
8
9
10
11
12
13
14
15
16
17
18
19