Net Present Value (NPV)

You will learn what the Net Present Value (“NPV”) concept
means in detail in your first finance class and will likely use the concept in multiple classes throughout
your MBA program (eg: DCF) and hopefully the rest of your life as you make investment or financial
decisions. Net Present Value or NPV essentially shows you what a future stream of cash from is worth
today given your ‘cost of capital’ or ‘discount rate’. We also have a lovely infographic that explains what
the time value of money is. The Microsoft Excel syntax for the NPV function is “=NPV(discount rate,
cashflow 1, cashflow 2, cashflow 3, ……)”.

Internal Rate Of Return (IRR)

In your first finance class, you will also learn what the Internal Rate Of
Return (“IRR”) means and along with the NPV use is often in multiple classes throughout your MBA
program and hopefully the rest of your life as you make investment or financial decisions. The Internal
Rate Of Return or IRR essentially tells you the effective interest you would have on a stream of
payments. The Microsoft Excel syntax for the IRR function is = IRR(cashflow 1, cashflow 2, cashflow 3 … ,
discount rate guesstimate). In excel you will see it as “=IRR(values,guess)”.

‘PMT’ to Compute Loan Payments

The Microsoft Excel ‘PMT’ function (which stands for ‘payment’)

calculates the monthly or periodic payment for a loan or borrowing. This function is very useful to
calculate the monthly payment on a home mortgage or a car loan. The Microsoft Excel ‘PMT’ function
assumes that the payment will be a constant stream of payments at fixed period intervals of time and
loan or borrowing with be at a constant rate of interest. The Microsoft Excel syntax for the PMT
function is PMT(interest rate, number of periods, present value of the loan, future value of the loan,
payment type-beginning or ending). In excel you will see it as “=PMT(rate,nper,pv,fv,type)”.
If function

The If function is among the most versatile function

of Microsoft Excel allowing you to model logical thinking into Microsoft Excel. The Microsoft Excel IF
function first checks if the specified condition is true and if it is true specifies the outcome of the
situation. If the function is not true or it is false, then the if function false, specifies another outcome for
the situation. There is probably no limit to the uses and application of the IF function. You could have a
single logic instruction alone or have multiple sets of logical functions built into one Microsoft Excel cell
using the IF function (nested If functions). The IF function can be used alone or in combination with
other Microsoft Excel functions. The Microsoft Excel syntax for the If function is IF(provide the logic you
want to evaluate, [provide the outcome if the logic is true or satisfied], [provide the outcome if the logic
is false or NOT satisfied]). Inside the Microsoft Excel cell you will see it as “= IF(logical_test,
[value_if_true], [value_if_false])”.

Fixed Reference / Absolute Reference

The fixed reference also called absolute reference is a Microsoft Excel

technique that you could definitely use on a daily basis! Fixed reference or absolute reference refers to
the practice of linking to a ‘fixed’ or unchangeable cell when you are copying and moving formulas in a
Microsoft Excel file. We use the fixed or absolute reference in a Microsoft Excel formula to refer to cells
that we don’t want to change as the formula is copied and pasted elsewhere. The opposite of a fixed
reference or absolute reference is called relative reference. When you provide a relative reference
inside a formula, and we copy the contents of the formula and paste it elsewhere, it will not pick up the
inputs from the original cell but from the same relative position in reference to the cell it is copied.
When you use a formula that references the content in another cell the references are relative by
default. To make it a fixed reference or absolute reference, so you would have to type dollar signs
before the column alphabet and row number.

COUNT Functions
 The COUNT family of functions is one that will be mightily useful for
MBA students. The count function in Microsoft Excel includes the simple count function COUNT
(specified range) counts the number of cells that contain numbers within the specified range. Inside the
Microsoft Excel cell you will see it as “=COUNT(A1:A20)”. Other members of the COUNT family include
COUNTA which counts the number of cells that are not empty inside a specified range of cells,
COUNTBLANK which counts empty cells inside a specified range of cells, COUNTIF which counts the
number of cells within a range that meet the given criteria.

SUM Functions

Just like the COUNT family of functions, the SUM family of

functions will be mightily useful for MBA students. The sum function in Microsoft Excel includes the
simple sum function SUM (specified range) sums up the values of cells that contain numbers within the
specified range. Inside the Microsoft Excel cell you will see it as “=SUM(number1,[number2],…])”. Other
members of the SUM family include SUMIF and SUMIFS which adds conditions to be satisfied before the
values of cells that contain numbers within the specified range are added up. This family of functions is
very useful for financial modeling and other types of operations modeling.

TREND function

Making a judgment or decision on the future is an

essential part of management. We need to forecast revenues, costs, capacity utilization, etc. using
historical information. Most MBA students will encounter the regression technique and will spend time
understanding the least square method of regression. Microsoft Excel has a nifty function called
TREND. The TREND function generates the desired values for the decision assuming the trend (linear)
continues along the established path. The Microsoft Excel TREND function fits a straight line using the
same method used in a full blown regression analysis which is the least squared method. The Microsoft
Excel TREND function is written with these instructions get the TREND(using the historical pattern of
known_y’s and known_x’s and given me the corresponding values for a new set of day which is specified
in a array new_x’s. Inside the Microsoft Excel cell you will see it as
“=TREND(known_y’s,known_x’s,new_x’s,const)”.