Discount rate 8%

NPV
IRR

Year Cash flow

0 -600
1 100
2 100
3 100
4 100
5 100
6 100
7 100
8 100
9 100
10 100

Decision: The NPV > 0 and hence you should purchase the asset.
Note that the IRR > discount rate, which leads to the same decision.
Cost 10,000
Payment
Interest 15%

Principal Payment
Year at beginning at end of Interest Principal
of year year
1 10,000.00 #VALUE!
2
3
4
5
6
 A B C D E F G
1 Discount rate 15%
2 Initial payment 129.2852
3 NPV -226.52 #VALUE! Use Solver (see screen shot below) to find the an
4
5 Year Cash flow
6 0 -1000.00
7 1 100.00 #VALUE!
8 2 110.00 #VALUE!
9 3 121.00 #VALUE!
10 4 133.10
11 5 146.41
12 6 161.05
13 7 177.16
14 8 194.87
15 9 214.36
16 10 235.79
17 11 259.37
 H I
1
2
e screen shot below)
3 to find the answer.
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17
 A B C D E F
1 Discount rate 20%
2 NPV 76.71 Data table
3
4 Year Cash flow 0%
5 0 -500 4%
6 1 600 8%
7 2 300 12%
8 3 300 16%
9 4 200 20%
10 5 -1,000 24%
11 28%
12 IRR1 6.34% #VALUE! 32%
13 IRR2 60.20% #VALUE! 36%
14 40%
15 44%
16 48%
17 Since the NPV > 0 for interest 52%
18 rates between 6.34% and 60.20%, 56%
19 you would invest in the project 60%
20 if the discount rate is 20%. 64%
21 68%
22 72%
 A B C D E F G H
1 IRR? 10.00%
Division of payment
2 LOAN TABLE between:
Principal Payment
Cash
3 Year Year at beginning at end of Interest Principal
flow
of year year
4 0 -800 1
5 1 300 2
6 2 200 3
7 3 150 4
8 4 122 5
9 5 133 6 <-- Should be zero for IRR
10
11
12 IRR #VALUE!
 A B C D E F G H
1 IRR? 3.00%
Division of payment
2 LOAN TABLE between:
Principal Payment
Cash
3 Year Year at beginning at end of Interest Principal
flow
of year year
4 0 -800 1
5 1 300 2
6 2 200 3
7 3 150 4
8 4 122 5
9 5 133 6
10
11
12 IRR 5.07% #VALUE!
Loan principal 100,000
Term (years) 5
Interest 13%
Annual payment #VALUE!
Loan principal 15,000
Interest rate
annual 15%
monthly #VALUE!
Loan term (months) 48

Monthly payment #VALUE!

Split of payment
between:
Principal at
Month beginning of Payment Interest Principal
month
1 15,000.00
2
3
4
5
6
7
8
9
10
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49
 A B C D
1 Cost of car, cash 30,000

2 Month

3 Deferred payment plan 0

4 Cash payment 5,000 1
5 Monthly payment 1,050 2
6 Number of months 30 3
7 4
8 Bank car loan rate (annual) 15% 5
9 Bank car loan rate (monthly) 1.25% 6
10 7
11 9.a. Present value of deferred payment plan #VALUE! 8
12 9
13 Dealer's monthly IRR 1.56% #VALUE! 10
14 Annualized (in this case, multiplied by 12) 18.73% #VALUE! 11
15 12
16 13
17 14
18 15
19 16
20 17
21 18
22 19
23 20
24 21
25 22
26 23
27 24
28 25
29 26
30 27
31 28
32 29
33 30
 E F G H
1

Payment
under
2 Cash payment Difference
deferred
payment plan

3 30,000 5,000 25,000 #VALUE!

4 0 1,050 -1,050 #VALUE!
5 0 1,050 -1,050
6 0 1,050 -1,050
7 0 1,050 -1,050
8 0 1,050 -1,050
9 0 1,050 -1,050
10 0 1,050 -1,050
11 0 1,050 -1,050
12 0 1,050 -1,050
13 0 1,050 -1,050
14 0 1,050 -1,050
15 0 1,050 -1,050
16 0 1,050 -1,050
17 0 1,050 -1,050
18 0 1,050 -1,050
19 0 1,050 -1,050
20 0 1,050 -1,050
21 0 1,050 -1,050
22 0 1,050 -1,050
23 0 1,050 -1,050
24 0 1,050 -1,050
25 0 1,050 -1,050
26 0 1,050 -1,050
27 0 1,050 -1,050
28 0 1,050 -1,050
29 0 1,050 -1,050
30 0 1,050 -1,050
31 0 1,050 -1,050
32 0 1,050 -1,050
33 0 1,050 -1,050
 A B C D
1 Annual payment 15,000
2 Interest rate 10%
3 Number of years 5
4 Total value $91,576.50 #VALUE!
5
Accumulation at
Payment at Annual
6 Year beginning of
end of year interest
year
7 1 0 15,000 0.00
8 2 15,000 15,000 1,500.00
9 3 31,500
10 4
11 5
12 6
 A B C D E
1 Annual payment 15,000
2 Interest rate 10%
3 Number of years 5
4 Total value $91,576.50 #VALUE!
5
Accumulation at
Payment at Annual
6 Year beginning of
end of year interest
year
7 1 0 15,000 0.00 #VALUE!
8 2 15,000 15,000 1,500.00 #VALUE!
9 3 15,000 -
10 4 15,000 -
11 5 15,000 -
12 6
 A B C D E

1 PAYMENTS MADE AT BEGINNING OF YEAR

2 Annual payment 15,000
3 Interest rate 10%
4 Number of years 5
5 Total value $100,734.15 #VALUE!
6
Payment at
Accumulation at Annual
7 Year beginning of
begining of year interest
year
8 1 0 15,000 1,500.00 #VALUE!
9 2 16,500 15,000 #VALUE!
10 3 15,000
11 4 15,000
12 5 15,000
13 6
 A B C
1 Monthly payment 250
2 Number of months 120
3
4 Effective monthly return?
5 Accumulation <-- =FV(B4,B2,-B1,,1)
 A B
1 Monthly payment 250
2 Number of months 120
3
4 Effective monthly return?
5 Accumulation
6
7 Effective annual interest
8 Using monthly compounding
9 Multiplying the monthly return by 12
 SAVING FOR RETIREMENT
Year
Interest rate
Number of payments 0
Number of withdrawals 1
Size of annual withdrawal 2
3
Size of payment 4
5
Present value of payments 6
Present value of withdrawals 7
8
Difference (this should be zero) 9
10
11
Check 12
Future value at age 65 of payments 13
Present value at age 65 of withdrawals 14
15
16
Use Solver to do this easily--you can also do 17
this analytically. 18
19
20
This problem has a one-step analytic 21
solution: see next spreadsheet 22
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ETIREMENT
Total, Payment at Withdrawal at
Total end
Age beginning of beginning of beginning of
of year
year year year
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 SAVING FOR RETIRMENT
Illustrates analytic solution
Interest rate
Number of payments
Number of withdrawals
Size of annual withdrawal from age 65

Present value of withdrawals

Annual payment

In one step
G FOR RETIRMENT
es analytic solution

#VALUE!
#VALUE!

#VALUE!
 A B C D E
1 EXERCISE 14, financial analyst's calculations
2 Interest earned 5%
3 Interest paid 6%
4 Initial deposit 25,000
5
6 THE 6% LOAN
Principal at
Payment at Repayment
7 Year beginning of Interest paid
end of year of principal
year
8 1
9 2
10 Total interest paid
11
12 Savings Account
In savings
End-year
account at In account at
13 Year interest
beginning of end of year
earned
year
14 1
15 2
16 Interest earned
17
18
19 Suppose you took the money out of your savings account and then repaid the account with the payments
20 the bank wants on the loan. This would generate the following table:
21
Interest
Money in savings Payment at Total annual
22 Year payment at
acct. at beg. year end of year payment
end of year
23 1
24 2
25
26 Thus you would have more money in your savings account than if you took the loan from the bank
27 and kept the account. It's better to take the money from your savings account!
 F
ulations 1
2
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18
ount with the payments
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22

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