Microsoft Office Tutorials and References

In Depth Information

**Chapter 12: Discounting and Depreciation Formulas**

12

Discounting and Depreciation

Formulas

In This Chapter

Calculating the net present value of future cash flows

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Understanding the various approaches for cash flows

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Using cross-checking to verify results

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Calculating the internal rate of return

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Dealing with multiple internal rates of return

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Calculating the net present value of irregular cash flows

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Finding the internal rate of return on irregular cash flows

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Using the NPV function to calculate accumulated values

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Using the depreciation functions

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The NPV (Net Present Value) and IRR (Internal Rate of Return) functions are perhaps the most

commonly used financial analysis functions. This chapter provides many examples that use these

functions for various types of financial analyses.

Using the NPV Function

The NPV function returns the sum of a series of cash flows, discounted to the present day using a

single discount rate. The cash flow amounts can vary, but they must be at regular intervals (for

example, monthly). The syntax for Excel’s NPV function is shown here; arguments in bold are

required:

NPV(rate,value1,value2, ...)