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15. Using What-If Analysis

The document explains how to use Excel's what-if analysis tool, specifically Goal Seek, to determine the interest rate needed for a specific loan payment. It provides a step-by-step guide on inserting payment functions and utilizing Goal Seek to find input values that achieve desired results. Additionally, it includes a challenge for users to practice using Goal Seek with their own scenarios.

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sinnernymph
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Download as PDF, TXT or read online on Scribd
18 views

15. Using What-If Analysis

The document explains how to use Excel's what-if analysis tool, specifically Goal Seek, to determine the interest rate needed for a specific loan payment. It provides a step-by-step guide on inserting payment functions and utilizing Goal Seek to find input values that achieve desired results. Additionally, it includes a challenge for users to practice using Goal Seek with their own scenarios.

Uploaded by

sinnernymph
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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The real power in Excel lies in its ability to perform multiple mathematical

calculations for you. One of the tools in Excel that you can use to perform
these calculations is a Data tool called what-if analysis. What-if analysis
allows you to see the effect different values have in formulas. Have you ever
thought, "What interest rate do I need to qualify for to have a car payment of
$400 on the car I want?" This question can be answered using what-if
analysis.

In this lesson, you will learn how to use a what-if analysis tool called Goal Seek.

Example
You need a loan to buy a new car. You know how much money you want to borrow, how long of a
period of time you want to take to pay off the loan (the term), and what payment you can afford to
make each month. But what you need to know is what interest rate you need to qualify for to make the
payment $400 per month. In the image below, you can see that if you didn’t have interest and just
divided this $20,000 into 60 monthly payments, you would pay $333.33 per month. The what-if
analysis tool will allow you to easily calculate the interest rate.

Where did the formula come from?


The formula that appears in cell B5 in the example image is a function. It isn't part of the what-if
analysis tool, so you will need to understand functions thoroughly before you use what-if analysis. For
the example scenario described above, you need a formula that will calculate the monthly payment.
Instead of writing the formula yourself, you can insert a function to do the calculation for you.

To insert a payment function:


 Select the Formula tab.
 Click the Insert Function command. A dialog box appears.
 Select PMT.
 Click OK. A dialog box appears.
 Insert your cursor in the first field. A description of the needed information
appears at the bottom of the dialog box.

 Select the cell in the spreadsheet with the needed information.


 Insert your cursor in the next field. A description about the needed information
appears at the bottom of the dialog box.
 Select the cell in the spreadsheet with the needed information.
 Repeat the last two steps until all of the necessary information is entered in the
dialog box.
 Click OK.

What-If Analysis tools

There are three What-If analysis tools that you can use. To access these, select the Data tab and locate
the What-If Analysis command. If you click this command, a menu with three options appears.

Goal seek is useful if you know the needed result but need to find the input value that will give you the
desired result. In this example, we know the desired result (a $400 monthly payment) and are seeking
the input value (the interest rate).

Goal Seek

To use Goal Seek to determine an interest rate:


 Select the Data tab.
 Locate the Data Tools group.
 Click the What-If Analysis command. A list of three options appears.
 Select Goal Seek. A small dialog box appears.
 Select the cell that you want to set to a specific value. In this example, we want to
set B5, the Payment cell.

 Insert the cursor in the next field.


 Enter a value in the value field. In this example, type -$400. Since we’re making a
payment that will be subtracted from our loan amount, we have to enter the
payment as a negative number.

 Insert the cursor in the next field.


 Select the cell that you want to change. This will be the cell that tries
various input values. In this example, select cell B4, which is the interest rate.
 Click OK.
 Then, click OK again. The interest rate appears in the cell. This indicates that a
7% interest rate will give us a $400 a month payment on a $20,000 loan that is
paid off over five years, or 60 months.

Challenge!
Use the Car Loan workbook to complete this challenge.

 Use Goal Seek to solve the problem described in the text and video lessons.
 Create a problem of your own that you might use Goal Seek to solve. Try it.

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