Excel Examples
EXAMPLE 1:
Discount Rate
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
ANSWER: NPV
EXAMPLE 2:
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
ANSWER
EXAMPLE 3:
Finance Rate
Reinvestment Rate
ANSWER
Beginning in column A, there are 16 examples of how to calculate basic accounting and math equations in Excel. Column C includes annotations for some of the examples.
NET PRESENT VALUE
12%
-65
10
20
40
65
-20
$18.30
Don’t include the year 0 cash flow of -$65 (cell B6) because the payments occur at the
BEGINNING of the first period.
INTERNAL RATE OF RETURN (IRR)
-65
10
20
40
65
-20
22.41%
MODIFIED INTERNAL RATE OF RETURN (MIRR)
12%
15%
18.12%
EXAMPLE 4:
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
ANSWER
PRESENT VALUE
EXAMPLE 5:
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
ANSWER
FUTURE VALUE
12%
5
100
Note: Use the yearly data from Example 2.
Discount $100 back 5 years at a 12% discount rate.
(Discount Rate)
(# Periods or years being discounted)
(FV)
$56.74
12%
5
100
$176.23
Compound $100 up 5 years at a 12% discount rate.
(Discount Rate)
(# Periods or years being compounded)
(PV)
EXAMPLE 6:
Present Value =
Future Value =
Discount Rate
ANSWER
FINDING N (NPER) NUMBER OF PERIODS (OR YEARS)
$50
$100
12%
6.12
How long would it take to compound $50 up to $100 using a 12% discount rate?
Or 6.12 years. Note that you have to make either the Future Value or Present Value input
negative for the formula to work.
How long would it take to discount $100 down to $25 using a 12% discount rate?
Present Value =
Future Value =
Discount Rate
$100
$25
12%
ANSWER
-12.23
EXAMPLE 7:
Present Value =
Future Value =
N (Nper)
ANSWER
Payment (PMT) =
Future Value =
N (Nper)
ANSWER
EXAMPLE 8:
Present Value =
Future Value =
N (Nper)
Interest Rate
ANSWER
EXAMPLE 9:
SUM
AVERAGE
VARIANCE
STANDARD DEVIATION
CORRELATION
COVARIANCE
FINDING I (INTEREST RATE)
$100
$200
5
14.87%
$100
$750
5
20.40%
Or 12.23 years. Note that years cannot be negative. You have to make either the Future Value
or Present Value input negative for the formula to work.
If you start with $100 and end with $200 after 5 years, what was the annual interest rate
earned?
Or 14.87%. You must keep either the Present Value or Future Value input negative.
If you receive payments of $100 each year for 5 years and end up with $750 after 5 years,
what was the annual interest rate earned?
Or 20.40%. Note that the Payment input or Future Value input must be negative for the
formula to work.
FINDING THE PAYMENT AMOUNT (PMT) OR ANNUITY AMOUNT
$0
$100,000
20
12%
$1,387.88
SUM, AVERAGE, VARIANCE, STANDARD DEVIATION,
CORRELATION, COVARIANCE
0.12
0.15
0.08
0.06
0.08
0.4900
0.0980
0.0013
0.0363
0.3928
0.0012
What would have to be the annual payment amount (or annuity amount) to have $100,000
after 20 years with a 12% discount rate?
Note: You want the Future Value input to be negative so your answer comes out positive.
0.09
0.11
0.15
0.03
-0.12
EXAMPLE 10:
CALCULATING A BOND’S PRICE
Suppose we have a bond with 22 years to maturity, a coupon rate of 8 percent, and a yield to maturity of 9 percent. If the bond makes semiannual payments, what is its price today?
Settlement
Maturity
Rate
YTM
1/1/00
1/1/22
0.08
0.09
Redemption
100
Frequency
Basis
Bond Price
2
0
90.49
Multiply by 10
904.91
Think of Settlement as the beginning of the duration of the bond.
Think of Maturity as the end of the duration of the bond.
(Coupon Rate)
(Yield to Maturity or Required Rate of Return)
(Bond’s Face Value, Par Value, or Fair Price)
Note that it is $100, not $1,000. You make the adjustments by multiplying the answer by 10.
Coupon payments are semiannual, so you put in a 2. If they are annual, then you input a 1.
Always leave it blank.
The answer, but you need to multiply it by 10 to get the actual bond price.
Note: Excel gives the bond price in 2 digits like in cell B109. You need to multiply it by 10 to get
the actual bond price.)
(ANSWER = 904.91)
EXAMPLE 11:
CALCULATING A BOND’S YIELD TO MATURITY
Suppose we have a bond with 22 years to maturity, a coupon rate of 8 percent and a price of $960.17. If the bond makes semiannual payments, what is its yield to maturity?
Settlement
Maturity
Rate
Pr
1/1/00
1/1/22
0.08
96.017
Redemption
100
Frequency
Basis
Yield to Maturity
2
0
8.40%
Think of Settlement as the beginning of the duration of the bond.
Think of Maturity as the end of the duration of the bond.
(Coupon Rate)
The bond’s price per $100 face value.
(Bond’s Face Value, Par Value, or Fair Price)
Note that it is $100, not $1,000.
Coupon payments are semiannual, so you put in a 2. If they are annual, then you input a 1.
Always leave it blank.
(ANSWER = 8.40%)
EXAMPLE 12:
CALCULATING THE EFFECTIVE ANNUAL INTEREST RATE
Suppose you have a Nominal Interest Rate of 5.25% that is compounded quarterly (4 times) during the year. What is the Effective Annual Interest Rate?
Nominal Interest Rate
Npery
Effective Annual Interest Rate
5.25%
4
5.3543%
(Number of compounding periods per year)
Note: The EAR is always higher than the Nominal Rate as long as there is more than 1
compounding period per year. If you increase the compounding periods per year, the Effective
Annual Rate will increase, but at a decreasing rate.
(ANSWER = 5.35%)
EXAMPLE 13:
CALCULATING THE ANNUAL NOMINAL INTEREST RATE
Suppose you have an Effective Annual Interest Rate of 5.35% that is compounded quarterly (4 times) during the year. What is the Nominal Annual Interest Rate?
Effective Annual Interest Rate
Npery
Nominal Annual Interest Rate
5.35%
4
5.2459%
(Number of compounding periods per year)
(ANSWER = 5.25%)
CALCULATING THE INTEREST RATE PER PERIOD OF A LOAN
OR AN INVESTMENT
EXAMPLE 14:
If you make monthly payments of $200 on an $8,000 loan over 4 years, what is the Annual Interest Rate of the loan?
4
-200
8000
Years of the Loan
Monthly Payment
Amount of the Loan
Monthly Interest Rate of the Loan
0.77%
Annual Interest Rate of the Loan
9.24%
Note: Multiply the years of the loan by 12 months for the monthly rate.
(ANSWER = .77%)
Note: Multiply the Monthly Interest Rate by 12 to get the annual rate.
(ANSWER = 9.24%)
EXAMPLE 15:
CALCULATING THE GEOMETRIC AVERAGE RETURN (OR MEAN)
A stock has produced returns of 14.6 percent, 5.3 percent, 17.6 percent, and -4.7 percent over the past four years, respectively. What is the geometric average return?
Year 1
Year 2
Year 3
1.146
1.053
1.176
0.953
7.84%
EXAMPLE 16:
Adding cell B163 to cell B164:
Subtracting cell B163 from cell B164:
Multiplying cell B163 by cell B164:
Dividing cell B164 by cell B163:
Using Parentheses: Multiplying cell B163
by (cell B164 + cell B165):
Calculating cell B163 to the power of cell
B164:
Calculating the Square Root of cell B171:
Calculating the Natural Logarithm of cell
B171:
End of worksheet
SIMPLE MATH CALCULATIONS
2
2
5
4
0
4
1
14
4
2
1.3863
Add 1 to all positive returns.
Add 1 to all positive returns.
Add 1 to all positive returns.
For negative returns, subtract it from 1. You have to do this to keep all data positive.
Note: Place a minus 1 after the formula to get rid of the whole number.
(ANSWER = 7.84%)
MBA-FP6016
Assessment Problems – Helpful Tips
Assessment 2 – Financial Statements
Use the inputs provided in the Excel spreadsheet to come up with formula inputs.
Basic accounting equations and formulas:
• − = . This formula can be manipulated with simple algebra to
place any of the three inputs separately on one side of the equation.
• The equity multiplier formula starts out as ⁄ , but it is derived
into the following formula: 1 + − .
• The return on equity formula is ⁄ , but it can be derived into the
following formula: × .
Assessment 3 – Calculating Financial Values
For all of the problems, be sure to use the correct built-in Excel formulas to derive your
answers. Do not use algebra.
Assessment 4 – Calculating Payback and Profitability
Problem 1: When you calculate NPV using the built-in NPV formula in Excel, be sure to place
the year 0 cash outflow outside of the parentheses in the formula because the payment
occurs at the beginning of the first period.
Problem 2: The payback period formula is the amount of time it takes to recover the cost of
the project or investment. The formula to use is ⁄ ℎ .
Problem 4: When you find the NPV as the first step of calculating the profitability index, be
sure to exclude using the year 0 cash outflow (initial cost), using the built-in NPV formula in
Excel. When calculating the profitability index, make sure the year 0 initial cost is a positive
number.
Problem 5: When calculating the operating cash flow, use this formula:
= ( − ) × (1 − ) + ×
First, you will have to multiply a few of the inputs given in the assessment to come up with
some of the formula inputs. For the first part of the formula, you need to multiply the number of
servings produced per year by the price of each ice cream serving to derive the sales, which
are not given in their entirety in the problem. You need to find this in order to derive the costs
and depreciation.
Assessment 6 – Calculating Risks and Returns
Problem 8: Under CAPM, the cost of equity (or expected return on equity) formula is:
+ × ( ℎ − )
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MBA-FP6016
Assessment 7 – Dividends and Stocks
Problem 2: If the stock split increases the number of shares, then the stock price has to be
lower than it originally was. If it is a reverse stock split, where number of shares decrease,
then the stock price must be higher than it originally was.
Problem 3: For this problem, rearrange what is known as the Lintner formula. You want to
isolate Div1 (the dividend one year from now) so the formula should look like the following:
Div1 = Div0 + s*(t *EPS1 – Div0) (Note: The * indicates multiplying.)
1 = 0 + ( × 1 − 0)
Assessment 8 – Megaware Case Study
Problem 5: Use what you know about the situation and the theory to come up with an answer
that seems appropriate according to the theory. Do not focus on having all exact numbers to
accomplish everything. The final number is not what is important. What does each factor
stand for and what happens if one chooses one of the possibilities for each factor individually?
0 = 1(1 − )
= ×
What each variable stands for is known in problem 5:
• b = retention ratio.
• E1 = earnings next year.
• ROE = return on equity.
• Dividend-payout ratio = 1 minus b.
• P0 = dividend next year; the earnings next year times 1 minus the retention ratio.
• Rs = sustainable growth rate; the return on equity times the retention ratio.
Eight years in from the start of the company, the profit is $42 million from the sale of a fixed
asset.
• What happens to P0 and ROE if all other factors remain steady and b goes up or
down?
• What effect does the one-time influx of $42 million have on the formula?
Assessment 9 – Financing and Exchange Rates
Problem 1: When calculating the cash for this problem, use the following given data to derive
the answer:
• Net worth.
• Long-term debt.
• Net working capital (excluding cash).
• Fixed assets.
Problem 2:
• For the first calculation, just find the dollar value of the current shares outstanding and
add that to the value for the rights offering using the given data.
• For the second calculation, you will use the number of shares outstanding and number
of new shares outstanding in the future (rights offering) to derive the answer.
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MBA-FP6016
•
•
For the third calculation, you will use the new market value of the company, the
number of shares outstanding, and the number of new shares outstanding in the future
(rights offering) to derive the answer.
For the last calculation, you will use the current stock price and ex-rights price to
derive the answer.
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