Microsoft Office Tutorials and References
In Depth Information
The XIRR function has the same problem with multiple rates of return as IRR. It expects
that the cash flow changes signs only once: that is, goes from negative to positive or
from positive to negative. If the sign changes more than once, it is essential that you
plug the XIRR result back into an XNPV function to verify that it returns zero. Figure
12-12 shows such a verification, although the sign only changes once in that example.
Depreciation Calculations
Depreciation is an accounting concept whereby the value of an asset is expensed over time. Some expenditures
affect only the current period and are expensed fully in that period. Other expenditures, however, affect multiple
periods. These expenditures are capitalized (made into an asset) and depreciated (written off a little each peri-
od). A forklift, for example, may be useful for five years. Expensing the full cost of the forklift in the year it
was purchased would not put the correct cost into the correct years. Instead, the forklift is capitalized, and one-
fifth of its cost is expensed in each year of its useful life.
The examples in this section are available at this book's website. The workbook is
named depreciation.xlsx.
Table 12-1 summarizes Excel's depreciation functions and the arguments used by each. For complete details,
consult Excel's Help system.
Table 12-1: Excel Depreciation Functions
Function
Depreciation Method
Arguments*
Straight-line. The asset depreciates by the same amount
each year of its life.
SLN
cost, salvage, life
cost, salvage, life,
period, [month]
DB
Declining balance. Computes depreciation at a fixed rate.
Double-declining balance. Computes depreciation at an ac-
celerated rate. Depreciation is highest in the first period and
decreases in successive periods.
cost, salvage, life,
period, month,
[factor]
DDB
Sum of the year's digits. Allocates a larger depreciation in
the earlier years of an asset's life.
cost, salvage, life,
period
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