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The Money Case - Part 1

Time Value of Money in Excel (IRR, NPV, Payback Period)

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10 views5 pages

The Money Case - Part 1

Time Value of Money in Excel (IRR, NPV, Payback Period)

Uploaded by

agnesskuthea85
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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The Money Case - Answer template

Complete the cells that have yellow fill.

1. Lump Sum Payments - use PV function and FV function


a b c
FV $ 250 $ 250 $ 250
t 1 10 10
r 8% 8% 16%
PV $ 231 $ 116 $ 57

2. Perpetuities - Use the perpetuity formula and PV function


a b c d
CF $ 375 $ 375 $ 375 $ 375
r 7% 7% 7% 7%
g 0% 0% 0% 2%
start 1 0 4 1
PV $ 5,357.14 $ 375 $ 1,270 $ 7,500

3. Annuity - use PV function


Year 1 2 3 4 5 6 7 8 9
CF $ 375 $ 375 $ 375 $ 375 $ 375 $ 375 $ 375 $ 375 $ 375
r 7%
PV(year 0) $ 350 $ 328 $ 306 $ 286 $ 267 $ 250 $ 234 $ 218 $ 204
Sum of PV $ 2,634

Or use the PV(.) Function


PV $2,634

4. Compare 2a & 3

2a: Perp $ 5,357


3: Annuity $ 2,634
Difference $ 2,723

5. Lottery - use of PV function


Year 0 1 2 3 4 5 6 7 8
CF $ 720 $ 720 $ 720 $ 720 $ 720 $ 720 $ 720 $ 720 $ 720
r 5%
PV(year 0) $ 720 $ 686 $ 653 $ 622 $ 592 $ 564 $ 537 $ 512 $ 487
Sum of PV ($000) $ 10,655

Or use the PV(.) Function


PV ($000) 10,655

Non-discounted sum of CF ($000)


$ 18,000

6. NPV of Cashflows - use of NPV function


Year 0 1 2 3 4
CF $ (12,000) $ - $ 800 $ 1,750 $ 2,000
r 9%
PV(year 0) $ (12,000) $ - $ 673 $ 1,351 $ 1,417
Sum of PV $ (8,558)
Or use the NPV() Function
NPV $ (8,558)

Purchase decision: Do Not BUY

7. NPV of Cashflows - Use of NPV and PV function


Year 0 1 2 3 4
CF $ (12,000) $ - $ 800 $ 1,750 $ 2,000
r 9%
PV(year 0) $ (12,000) $ - $ 673 $ 1,351 $ 1,417
Sum of PV $ (8,558)

Or use the NPV() Function


NPV (Yr0-4) $ (8,558)

Perp starts year 5


CF $ 2,200
r 9%
g 0%
start 5
PV (Yr4) $ 24,444
PV (Yr0) $ 17,317

NPV (All Years) $ (7,127)

Or use the NPV() Function and PV Function


NPV ($7,128.64)

Purchase decision: Do Not BUY

8. Firm valuation - Use of NPV and PV function


Year 1 2 3 4
Steady state
cash flow per
year

Expected CF $ 2,000 $ 3,000 $ 1,500 $ 1,000


Discount rate 9%

Use the NPV() Function and PV Function


BH Valuation $4,601
10
$ 375

$ 191

9
$ 720

$ 464
10 11 12 13 14 15 16 17 18 19 20 21 22 23
$ 720 $ 720 $ 720 $ 720 $ 720 $ 720 $ 720 $ 720 $ 720 $ 720 $ 720 $ 720 $ 720 $ 720

$ 442 $ 421 $ 401 $ 382 $ 364 $ 346 $ 330 $ 314 $ 299 $ 285 $ 271 $ 258 $ 246 $ 234
24
$ 720

$ 223

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