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Class 4 Excel Finance Functions

The document discusses several financial functions in Excel including PV, FV, RATE, and NPER. It provides examples of how to use each function to calculate the present value of a cash flow, future value of an investment, interest rate on a loan, and number of periods to pay off a loan. It also covers straight-line and sum-of-years' digits depreciation methods.

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master.j878
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30 views

Class 4 Excel Finance Functions

The document discusses several financial functions in Excel including PV, FV, RATE, and NPER. It provides examples of how to use each function to calculate the present value of a cash flow, future value of an investment, interest rate on a loan, and number of periods to pay off a loan. It also covers straight-line and sum-of-years' digits depreciation methods.

Uploaded by

master.j878
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Financial Functions: PV Function

• You are buying a copier. Would you rather pay $11,000 today or
$3,000 a year, at the end of each year, for five years? Assume the
cost of capital is 12%.
• Using the PV function:
• =PV(rate,#per,[pmt],[fv],[type])
• Rate must be consistent with #per.
• #per is the number of payments.
• Pmt (payments): A payment has a negative sign (-$3,000).
• Fv (future value): cash balance after you make the last payment.
• Type: if 0 that means payments are made at the end of the time
unit, if 1 at the beginning.
• =pv(0.12,5,-3000,0,0) or =pv(0.12,5,-3000)=$10,814.33
• It is a better deal to make payments at the end of the year than to
pay out $11,000 today.

• Scenario 2:
• You are buying a copier. Would you rather pay $11,000 today or
$3,000 a year, at the beginning of each year, for five years?
Assume the cost of capital is 12%.
• =pv(0.12,5,-3000,0,1)=$12,112.05
• It is a better deal to pay $11,000 today than make payments at the
beginning of the year.
• Scenario 3:
• You are buying a copier. Would you rather pay $11,000 today or
$3,000 a year, at the end of each year, for five years? You must
include an extra $500 payment at the end of year 5. Assume the
cost of capital is 12%.
• =pv(0.12,5,-3000,-500,0)=$11,098.04
• It is a better deal to pay $11,000 today.

• Scenario 4:
• What if they asked for $300 extra at the end of year 5?
• =pv(0.12,5,-3000,-300,0)=$10,984.56
• Better to pay $3,000 at the end of each year and include $300 at
the end of year 5 than pay $11,000 today.
Financial Functions: FV Function
• If at the end of each of the next 40 years, I invest $2,000 a year
toward my retirement and earn 8% a year on my investments,
how much will I have when I retire?
• =FV(rate,#per,[pmt],[pv],[type])
• Pmt: payment made each period (-$2,000).
• Pv: amount of money owed right now.
• If we owe $100 to some one pv=$100.
• If we have $100 in the bank, then pv=-$100
• =fv(8%,40,-2000,0,0)=$518,113.04 or =fv(8%,40,-2000) or
=fv(0.08,40,-2000)
• Scenario 2:
• If at the end of each of the next 20 years, I invest $2,000 a
year toward my retirement and earn 5% a year on my
investments, how much will I have when I retire?

• =fv(5%,20,-2000)=$66,131.91
Financial Functions: Rate Function
• I want to borrow $80,000 and make monthly payments for 10
years. The maximum monthly payment I can afford is $1,000.
What is the maximum interest rate I can afford?
• =rate(#per,pmt,pv,[fv],[type])
• Type 0 = end of month payments.
• =rate(120,-1000,80000,0)=0.7241% monthly
Financial Functions: NPER Function
• If I borrow $100,000 at 8 percent and make payments of $10,000
per year, how many years it will take me to pay back the loan?
• =nper(rate,pmt,pv,[fv],[type])
• =nper(8%,-10000,100000)=20.91 years

• Scenario 2:
• If I borrow $100,000 at 8 percent and make payments of
$10,000 per year, how many years it will take me to pay back
the loan supposing you are planning to pay back $40,000?
• =nper(8%,-10000,100000,-40000)=15.90 years
Depreciation
• Depreciation is the reduction in the long-lived assets from use.
• Commonly used methods for computing depreciation:
• Straight Line depreciation (SLN)
• Sum-of-years’ digits depreciation (SYD)

• Let’s consider a new machine that is worth $15,000 and over 5


years will be depreciated to a final (or salvage value) of $3,000.
The question is how the various depreciation methods allocate
$15,000 - $3,000 = $12,000 of depreciation over 5 years.
• SLN: depreciates the machine’s value an equal amount during
each year.
• =SLN(cost,salvage_value,years)
• =sln(15000,3000,5)=$2,400 per year

• SYD method loads more of the depreciation to early years.


• =SYD(cost,salvage_value,years,per)
• =syd(15000,3000,5,1)=$4,000
• =syd(15000,3000,5,2)=$3,200

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