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Rates

This document discusses the use of Excel functions XIRR and XNPV for calculating the internal rate of return and net present value of cash flows occurring on specific dates. It provides examples of how to compute these values and highlights the differences in syntax between XNPV and NPV. Additionally, it mentions existing bugs in XNPV and XIRR and introduces alternative functions, NXNPV and NXIRR, to address these issues.

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Wycliff Ndua
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14 views4 pages

Rates

This document discusses the use of Excel functions XIRR and XNPV for calculating the internal rate of return and net present value of cash flows occurring on specific dates. It provides examples of how to compute these values and highlights the differences in syntax between XNPV and NPV. Additionally, it mentions existing bugs in XNPV and XIRR and introduces alternative functions, NXNPV and NXIRR, to address these issues.

Uploaded by

Wycliff Ndua
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Discounting Using Dated Cash Flows

Most of the computations in this chapter consider cash l ows which occur at

i xed periodic intervals. Typically we look at cash l ows which occur on dates

0, 1, … , n , where the period indicates an annual, semi-annual, or other i xed

interval. Two Excel functions, XIRR and XNPV , allow us to do computations

on cash l ows which occur on specii c dates that need not be at even

intervals. 7

In the following example we compute the IRR of an investment of $1,000

made on 1 January 2014 with payments on specii c dates:

7. If you do not see these functions, add them in by going to Tools|Add-ins on the toolbar

and

checking Analysis ToolPak .

ABC

Date Cash flow


01-Jan-14 -1,000

03-Mar-14 150

04-Jul-14 100

12-Oct-14 50

25-Dec-14 1,000

IRR 37.19% <-- =XIRR(B3:B7,A3:A7)

USING XIRR TO COMPUTE THE

ANNUALIZED INTERNAL RATE OF

RETURN

The function XIRR outputs an annualized return. It works by computing

the daily IRR and annualizing it, XIRR = (1+ daily IRR) − 1 365 .

XNPV computes the net present value of a series of cash l ows occurring

on specii c dates:

43 Basic Financial Calculations

9
10

11

12

13

ABC

Annual discount rate 12%

Date Cash flow

01-Jan-14 -1,000

03-Mar-15 100

04-Jul-15 195

12-Oct-16 350

25-Dec-17 800

Net present value 16.80 <-- =XNPV(B2,B5:B9,A5:A9)

USING XNPV TO COMPUTE THE NET

PRESENT VALUE

Note that XNPV has a different syntax from NPV!

XNPV requires all the cash flows, including the initial cash flow,

whereas NPV assumes that the first cash flow occurs one period

hence.

Fixing Bugs in XNPV and XIRR

Both XNPV and XIRR have bugs, which Microsoft has not i xed in several

versions of Excel. The i le with this chapter includes functions that i x these

bugs, called NXNPV and NXIRR . 8


• XNPV doesn ’ t work with zero or negative interest rates.

• XIRR does not identify multiple internal rates of return.

The XNPV relates to the failure of this function to correctly deal with zero

or negative discount rates.

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