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1) PMT means periodic payment (same amount each period) PMT function calculates the period payment for a loan (For the Borrower or the Lender). The Amount of each PMT must be the same and the time between each 2) PMT must be the same. Cash Flow matters in Finance. Cash going out of the wallet is negative. Cash 3) coming into the wallet is positive. For the borrow the PV is positive, the PMT is negative, and the FV is negative. For 4) the Lender the PV is negative, the PMT is positive, and the FV is positive. Be consistent with your unit of time! If you are calculating monthly payment, you need monthly interest rate and total number of months! (The period can be monthly, 5) quarterly, yearly or any other length). =PMT(rate = period rate, nper = total number of periods, pv means amount invested or lent out today, fv means amount received after all the periods have elapsed or amount paid after all the periods have elapsed, type refers to the PMT: 6) PMT at end of period = 0, PMT at beginning of period = 1) =FV(rate = period rate, nper = total number of periods, pmt means periodic payment, pv means amount invested or lent out today, type refers to the PMT: PMT 7) at end of period = 0, PMT at beginning of period = 1) Borrower Point of View: At an Annual Interest Rate of 6.50% the monthly 1 PMT paid = $0.00 Price of Car 34,799.00 Annual Interest Rate 6.50% Down Payment 10,000.00 Monthly Interest Rate Loan Amount Years for Loan 5 PMT end of period Total Months Monthly Payment 0.00 Periods per Year 12 PMT begin of period Type, 0 = End, 1 = Beg 1 Lender Point of view: At an Annual Interest Rate of 6.50% the monthly 2 PMT received = $0.00 Price of Car 34,799.00 Annual Interest Rate 6.50% Down Payment 10,000.00 Monthly Interest Rate 0.54% Loan Amount -24,799.00 Years for Loan 5 Monthly Payment Total Months 60 Monthly Payment 485.22 Periods per Year 12 At an Annual Interest Rate of 5.25% and a balloon payment of $5,000.00 at the end of 36 months, the monthly PMT = ($1,225.21) - Borrower's Point of 3 View. Price of Car 50,000.00 Annual Interest Rate 5.25% Down Payment 5,000.00 Monthly Interest Rate 0.44% Loan Amount 45,000.00 Years for Loan 3 Balloon Payment -5,000.00 Total Months 36 Monthly Payment Periods per Year 12 At an Annual Interest Rate of 8.50% and no payments during the first year, 4 the PMT = ($67,328.25) - Borrower's Point of View. Loan Amount 1,000,000.00 Annual Interest Rate 8.50% Years payment is put off 1 Period Interest Rate 2.13% FV after 1 year Years for Loan 6 Period Payment Total Periods 24 Period Payment -67,328.25 Periods per Year 4 check 1087748 1) PMT means periodic payment (same amount each period) PMT function calculates the period payment for a loan (For the Borrower or the Lender). The Amount of each PMT must be the same and the time between each 2) PMT must be the same. Cash Flow matters in Finance. Cash going out of the wallet is negative. Cash 3) coming into the wallet is positive. For the borrow the PV is positive, the PMT is negative, and the FV is negative. For 4) the Lender the PV is negative, the PMT is positive, and the FV is positive. Be consistent with your unit of time! If you are calculating monthly payment, you need monthly interest rate and total number of months! (The period can be monthly, 5) quarterly, yearly or any other length). =PMT(rate = period rate, nper = total number of periods, pv means amount invested or lent out today, fv means amount received after all the periods have elapsed or amount paid after all the periods have elapsed, type refers to the PMT: 6) PMT at end of period = 0, PMT at beginning of period = 1) =FV(rate = period rate, nper = total number of periods, pmt means periodic payment, pv means amount invested or lent out today, type refers to the PMT: PMT 7) at end of period = 0, PMT at beginning of period = 1) Borrower Point of View: At an Annual Interest Rate of 6.50% the monthly 1 PMT paid = ($485.22) Price of Car 34,799.00 Annual Interest Rate 6.50% Down Payment 10,000.00 Monthly Interest Rate 0.54% Loan Amount 24,799.00 Years for Loan 5 PMT end of period -485.22 Total Months 60 Monthly Payment -485.22 Periods per Year 12 PMT begin of period -482.61 Type, 0 = End, 1 = Beg 1 Lender Point of view: At an Annual Interest Rate of 6.50% the monthly 2 PMT received = $485.22 Price of Car 34,799.00 Annual Interest Rate 6.50% Down Payment 10,000.00 Monthly Interest Rate 0.54% Loan Amount -24,799.00 Years for Loan 5 Monthly Payment 485.22 Total Months 60 Monthly Payment 485.22 Periods per Year 12 At an Annual Interest Rate of 5.25% and a balloon payment of $5,000.00 at the end of 36 months, the monthly PMT = ($1,225.21) - Borrower's Point of 3 View. Price of Car 50,000.00 Annual Interest Rate 5.25% Down Payment 5,000.00 Monthly Interest Rate 0.44% Loan Amount 45,000.00 Years for Loan 3 Balloon Payment -5,000.00 Total Months 36 Monthly Payment -1,225.21 Periods per Year 12 At an Annual Interest Rate of 8.50% and no payments during the first year, 4 the PMT = ($67,328.25) - Borrower's Point of View. Loan Amount 1,000,000.00 Annual Interest Rate 8.50% Years payment is put off 1.00 Period Interest Rate 2.13% FV after 1 year 1,087,747.96 Years for Loan 6 Period Payment -67,328.25 Total Periods 24 Period Payment -67,328.25 Periods per Year 4 check 1087748 =RATE(nper = total number of periods, pmt means periodic payment, pv means amount invested or lent out today, fv means amount received after all the periods have elapsed or amount paid after all the periods have elapsed, type refers to the pmt: 1) pmt at end of period = 0, pmt at beginning of period = 1) Be consistent with your unit of time! If you are calculating monthly payment, you need monthly interest rate and total number of months! (The period can be monthly, quarterly, yearly 2) or any other length). 3) Remember, RATE returns the period rate!!!!!! Cash Flow matters in Finance. Cash going out of the wallet is negative. 4) Cash coming into the wallet is positive. For the borrow the PV is positive, the PMT is negative, and the FV is negative. For the Lender the PV is negative, the PMT is 5) positive, and the FV is positive. If you pay points, then you do not get to use all the cash you borrowed. Therefore, the Rate is really based on the cash you receive, not the face value of the loan. Item House Annual Rate 5.00% Price $200,000 Monthly Rate .00417 Down $0 Years 15 Loan $200,000 Months 180 Points 0.02 Periods Per Year 12 Type (0 = End, 1 = PMT -1,581.59 Begin) 0 Adjusted Annual Rate 0.053081 =RATE(nper = total number of periods, pmt means periodic payment, pv means amount invested or lent out today, fv means amount received after all the periods have elapsed or amount paid after all the periods have elapsed, type refers to the pmt: 1) pmt at end of period = 0, pmt at beginning of period = 1) Be consistent with your unit of time! If you are calculating monthly payment, you need monthly interest rate and total number of months! (The period can be monthly, quarterly, yearly 2) or any other length). 3) Remember, RATE returns the period rate!!!!!! Cash Flow matters in Finance. Cash going out of the wallet is negative. 4) Cash coming into the wallet is positive. For the borrow the PV is positive, the PMT is negative, and the FV is negative. For the Lender the PV is negative, the PMT is 5) positive, and the FV is positive. If you pay points, then you do not get to use all the cash you borrowed. Therefore, the Rate is really based on the cash you receive, not the face value of the loan. Item House Annual Rate 5.00% Price $200,000 Monthly Rate .00417 Down $0 Years 15 Loan $200,000 Months 180 Points 0.02 Periods Per Year 12 Type (0 = End, 1 = PMT -1,581.59 Begin) 0 Adjusted Annual Rate 0.053081 0.053081 Effective Interest Rate is always higher than APR or Nominal Rate when the compounding periods per year 1) are greater than 1. Why? Because you are earning interest on interest. =EFFECT(nominal_rate means APR or Nominal Rate (APR = NOMINAL RATE = period interest rate * 2) number of compounding periods in 1 year), npery means "number of compounding periods in 1 year") Cash Flow matters in Finance. Cash going out of the wallet is negative. Cash coming into the wallet is 3) positive. For the borrow the PV is positive, the PMT is negative, and the FV is negative. For the Lender the PV is 4) negative, the PMT is positive, and the FV is positive. Annual Interest Rate = 1 APR = Nominal Rate 0.085 check Period Rate 100 Amount put in bank on day 1 Periods per Year 12 =FV(C7,C8,,-E7) Effective Annual Rate =(1+C7)^C8*E7 Effective Annual Rate =E7*(1+C10) Effective Interest Rate is always higher than APR or Nominal Rate when the compounding periods per year 1) are greater than 1. Why? Because you are earning interest on interest. =EFFECT(nominal_rate means APR or Nominal Rate (APR = NOMINAL RATE = period interest rate * 2) number of compounding periods in 1 year), npery means "number of compounding periods in 1 year") Cash Flow matters in Finance. Cash going out of the wallet is negative. Cash coming into the wallet is 3) positive. For the borrow the PV is positive, the PMT is negative, and the FV is negative. For the Lender the PV is 4) negative, the PMT is positive, and the FV is positive. Annual Interest Rate = 1 APR = Nominal Rate 0.085 check Period Rate 0.007083 100 Amount put in bank on day 1 Periods per Year 12 108.8390906 =FV(C7,C8,,-E7) Effective Annual Rate 0.08839090589263550000 108.8390906 =(1+C7)^C8*E7 Effective Annual Rate 0.08839090589263550000 108.8390906 =E7*(1+C10) APR = Annual Percentage Rate = NOMINAL RATE = period interest rate * number of 1) compounding periods in 1 year. This is the rate usually calculated by the bank. Effective Interest Rate is always higher than APR or Nominal Rate when the compounding periods per year are greater than . Why? Because you are earning interest on interest - The Effective Interest Rate tells you in percentage terms what the rate really is (You could multiply it 2) plus 1 by the principal and get Future Value) 3) =EFFECT(APR or Nominal Rate, npery means "number of compounding periods in 1 year") 4) =NOMINAL(Effective Interest Rate), npery means "number of compounding periods in 1 year") =FV(rate = period rate, nper = total number of periods, pmt means periodic payment, pv means amount invested or lent out today, type refers to the PMT: PMT at end of period = 0, PMT at 5) beginning of period = 1) Cash Flow matters in Finance. Cash going out of the wallet is negative. Cash coming into the 6) wallet is positive. For the borrow the PV is positive, the PMT is negative, and the FV is negative. For the Lender 7) the PV is negative, the PMT is positive, and the FV is positive. Be consistent with your unit of time! If you are calculating monthly payment, you need monthly interest rate and total number of months! (The period can be monthly, quarterly, yearly or any 8) other length). Savings Plan that compounds interest 365 times a year, but you put money in 12 1 times a year. Monthly PMT = -250 x = years 25 n for account is = 365 APR = i = 0.08 Type= 0 or 1 ==> 0 check Solve for EAR first = 0.0832776 n for PMT = 12 Then from EAR, find APR (i) ==> Then from APR (i), find period Rate ==> Solve for Future Value = 2 MoneyTreeLoaning will: Allow you to write a check that has a date 25 days in the future for $250 and will give you $200 today (they cash check in 25 days). What is the APR and EAR? Days in Future = 25 Check Amount = 250 FV You get Today = 200 PV 25 day rate is = Days in Year = 365 # of 25 day periods in 1 year = APR = EAR = <== correct because math formula does not truncate to an inte EAR = <== Incorrect because the EFFECT function truncates npery to a Excel Help: Npery is truncated to an integer. If either argument is nonnumeric, EFFECT returns the #VALUE! error value. If nominal_rate ≤ 0 or if npery < 1, EFFECT returns the #NUM! error value. EFFECT is calculated as follows: oes not truncate to an integer nction truncates npery to an integer APR = Annual Percentage Rate = NOMINAL RATE = period interest rate * number of 1) compounding periods in 1 year. This is the rate usually calculated by the bank. Effective Interest Rate is always higher than APR or Nominal Rate when the compounding periods per year are greater than . Why? Because you are earning interest on interest - The Effective Interest Rate tells you in percentage terms what the rate really is (You could multiply it 2) plus 1 by the principal and get Future Value) 3) =EFFECT(APR or Nominal Rate, npery means "number of compounding periods in 1 year") 4) =NOMINAL(Effective Interest Rate), npery means "number of compounding periods in 1 year") =FV(rate = period rate, nper = total number of periods, pmt means periodic payment, pv means amount invested or lent out today, type refers to the PMT: PMT at end of period = 0, PMT at 5) beginning of period = 1) Cash Flow matters in Finance. Cash going out of the wallet is negative. Cash coming into the 6) wallet is positive. For the borrow the PV is positive, the PMT is negative, and the FV is negative. For the Lender 7) the PV is negative, the PMT is positive, and the FV is positive. Be consistent with your unit of time! If you are calculating monthly payment, you need monthly interest rate and total number of months! (The period can be monthly, quarterly, yearly or any 8) other length). Savings Plan that compounds interest 365 times a year, but you put money in 12 1 times a year. Monthly PMT = -250 x = years 25 n for account is = 365 APR = i = 0.08 Type= 0 or 1 ==> 0 check Solve for EAR first = 0.083277572 0.0832776 n for PMT = 12 Then from EAR, find APR (i) ==> 0.080258436 Then from APR (i), find period Rate ==> 0.006688203 Solve for Future Value = $238,757.59 If we have a Savings Plan that compounds interest 365 times a year, but we put $250.00 in only 12 times a year, the Future Value would be $238,757.59. 2 MoneyTreeLoaning will: Allow you to write a check that has a date 25 days in the future for $250 and will give you $200 today (they cash check in 25 days). What is the APR and EAR? Days in Future = 25 Check Amount = 250 FV You get Today = 200 PV 25 day rate is = 0.25 Days in Year = 365 # of 25 day periods in 1 year = 14.60 APR = 365.00% EAR = 2499.48% <== correct because math formula does not truncate to an inte EAR = #REF! <== Incorrect because the EFFECT function truncates npery to a Excel Help: Npery is truncated to an integer. If either argument is nonnumeric, EFFECT returns the #VALUE! error value. If nominal_rate ≤ 0 or if npery < 1, EFFECT returns the #NUM! error value. EFFECT is calculated as follows: oes not truncate to an integer nction truncates npery to an integer NPER function calculates the = total number of periods = Years*Number of compounding periods per year. Example 30 year loan compounded 12 1) times a year ==> 12*30 = 360 = Total periods. =NPER(rate = period Rate, pmt means periodic payment, pv means amount invested or lent out today, fv means amount received after all the periods have elapsed or amount paid after all the periods have elapsed, type refers to the pmt: pmt at end of period = 0, pmt at beginning of period = 2) 1) Be consistent with your unit of time! If you are calculating monthly payment, you need monthly interest rate and total number of months! (The period can 3) be monthly, quarterly, yearly or any other length). Cash Flow matters in Finance. Cash going out of the wallet is negative. 4) Cash coming into the wallet is positive. For the borrow the PV is positive, the PMT is negative, and the FV is negative. For the Lender the PV is negative, the PMT is positive, and the FV 5) is positive. How long to pay off your credit Card if you pay only the minimum PMT required? Balance = PV = 2,000.00 APR = i = 18.00% Type n= 12 0 Minimum Monthly PMT = 41.00 n*x = NPER function = x = n*x/n = years Words: NPER function calculates the = total number of periods = Years*Number of compounding periods per year. Example 30 year loan compounded 12 1) times a year ==> 12*30 = 360 = Total periods. =NPER(rate = period Rate, pmt means periodic payment, pv means amount invested or lent out today, fv means amount received after all the periods have elapsed or amount paid after all the periods have elapsed, type refers to the pmt: pmt at end of period = 0, pmt at beginning of period = 2) 1) Be consistent with your unit of time! If you are calculating monthly payment, you need monthly interest rate and total number of months! (The period can 3) be monthly, quarterly, yearly or any other length). Cash Flow matters in Finance. Cash going out of the wallet is negative. 4) Cash coming into the wallet is positive. For the borrow the PV is positive, the PMT is negative, and the FV is negative. For the Lender the PV is negative, the PMT is positive, and the FV 5) is positive. How long to pay off your credit Card if you pay only the minimum PMT required? Balance = PV = 2,000.00 APR = i = 18.00% Type n= 12 0 Minimum Monthly PMT = 41.00 n*x = NPER function = 88.367992 x = n*x/n = years 7.3639994 It will take 7.36399935665702 years to pay off the credit card if we make only the minimum payment each Words: period. 260aa84a-bb10-4c7e-8b55-cbd93bfe6d73.xls - Loan Analysis 1) PMT means periodic payment (same amount each period) PMT function calculates the period payment for a loan (For the Borrower or the Lender). The Amount of each PMT must be the same and the 2) time between each PMT must be the same. 3) Cash Flow matters in Finance. Cash going out of the wallet is negative. Cash coming into the wallet is positive. For the borrow the PV is positive, the PMT is negative, and the FV is negative. For the Lender the PV is negative, the PMT is positive, and the 4) FV is positive. Be consistent with your unit of time! If you are calculating monthly payment, you need monthly interest rate and total number of months! (The 5) period can be monthly, quarterly, yearly or any other length). =PMT(rate = period rate, nper = total number of periods, pv means amount invested or lent out today, fv means amount received after all the periods have elapsed or amount paid after all the periods have elapsed, type refers to the PMT: PMT at end of period = 0, PMT at beginning of 6) period = 1) =RATE(nper = total number of periods, pmt means periodic payment, pv means amount invested or lent out today, fv means amount received after all the periods have elapsed or amount paid after all the periods have elapsed, type refers to the pmt: pmt at end of period = 0, pmt at 7) beginning of period = 1) Loan Comparison % Down Amount to Monthly Actual Cash Adjusted Option# Payment APR Years Points Extra Fee Borrow Payment Received APR PMT w Balloon 1 5.0% 8.50% 30 1 400 2 15.0% 8.25% 30 3 400 3 4.5% 8.90% 30 1 450 4 12.0% 9.00% 30 2 100 5 15.0% 8.50% 30 2 125 6 20.0% 8.00% 15 0 500 7 15.0% 7.60% 15 1 750 Price 430,000 Compounding Periods per year 12 Balloon Payment (Optional) -50,000 Page 23 of 32 260aa84a-bb10-4c7e-8b55-cbd93bfe6d73.xls - Loan Analysis (an) 1) PMT means periodic payment (same amount each period) PMT function calculates the period payment for a loan (For the Borrower or the Lender). The Amount of each PMT must be the same and the 2) time between each PMT must be the same. 3) Cash Flow matters in Finance. Cash going out of the wallet is negative. Cash coming into the wallet is positive. For the borrow the PV is positive, the PMT is negative, and the FV is negative. For the Lender the PV is negative, the PMT is positive, and the 4) FV is positive. Be consistent with your unit of time! If you are calculating monthly payment, you need monthly interest rate and total number of months! (The 5) period can be monthly, quarterly, yearly or any other length). =PMT(rate = period rate, nper = total number of periods, pv means amount invested or lent out today, fv means amount received after all the periods have elapsed or amount paid after all the periods have elapsed, type refers to the PMT: PMT at end of period = 0, PMT at beginning of 6) period = 1) =RATE(nper = total number of periods, pmt means periodic payment, pv means amount invested or lent out today, fv means amount received after all the periods have elapsed or amount paid after all the periods have elapsed, type refers to the pmt: pmt at end of period = 0, pmt at 7) beginning of period = 1) Loan Comparison % Down Amount to Monthly Actual Cash Adjusted Option# Payment APR Years Points Extra Fee Borrow Payment Received APR PMT w Balloon 1 5.0% 8.50% 30 1 400 408,500.00 -3,141.01 404,015.00 8.620% -3,110.72 2 15.0% 8.25% 30 3 400 365,500.00 -2,745.88 354,135.00 8.591% -2,714.00 3 4.5% 8.90% 30 1 450 410,650.00 -3,274.68 406,093.50 9.024% -3,246.79 4 12.0% 9.00% 30 2 100 378,400.00 -3,044.69 370,732.00 9.231% -3,017.38 5 15.0% 8.50% 30 2 125 365,500.00 -2,810.38 358,065.00 8.724% -2,780.09 6 20.0% 8.00% 15 0 500 344,000.00 -3,287.44 343,500.00 8.024% -3,142.95 7 15.0% 7.60% 15 1 750 365,500.00 -3,409.03 361,095.00 7.799% -3,259.35 Price 430,000 Compounding Periods per year 12 Balloon Payment (Optional) -50,000 Page 24 of 32 Preset Value = How much future cash flows are worth today. Think of it as interest going backwards; if we put money in the bank today (present value) it will be worth some future value amount in the future: Present Value is the Opposite! We want to receive some cash amounts in the future, what amount do we have to put in the bank 1) today? PV function calculates present Value when the cash flows are the same and are separated by regular time periods. NPV function lets us calculate the present value when the amounts are not the same. XNPV function lets us calculate the present value when the amounts are not the same and 2) the times are not the same. When an asset has an annuity cash flow pattern, you can use Capital Investment Decision. An annuity has equal paymen 3) =PV( rate, nper, fv, type) intervals. =NPV( rate, CF1, CF2…. (as range or cells separated by Calculates the net present value for a series of cash flows tha 4) commas). NOTE: You cannot include Cash Flow at time 0. time between each cash flow) Returns the net present value for a schedule of cash flows tha =XNPV(rate, values, dates) NOTE: you can include Cash periodic. To calculate the net present value for a series of c 5) Flow at time 0. periodic, use the NPV function. Cash Flow matters in Finance. Cash going out of the wallet 6) is negative. Cash coming into the wallet is positive. For the borrow the PV is positive, the PMT is negative, and the FV is negative. For the Lender the PV is negative, the 7) PMT is positive, and the FV is positive. Be consistent with your unit of time! If you are calculating monthly payment, you need monthly interest rate and total number of months! (The period can be monthly, quarterly, 8) yearly or any other length). You are considering buying a machine that will yield $35,000.00 net cash flow in for the next ten years. If you must earn a minimum return on investment of 15.00%, 1 should we buy a machine if it costs ($165,500.00)? Net Cash Flow at end of each year = 35,000.00 Min Return (hurdle rate or Discount Rate) = 15% Cost = -165,500.00 Years 10 PV = Difference = NPV = NPV = 2 Period CF CF 0 -165,500.00 1 35,000.00 40,000.00 2 35,000.00 40,000.00 3 35,000.00 40,000.00 4 35,000.00 35,000.00 5 35,000.00 35,000.00 6 35,000.00 35,000.00 7 35,000.00 20,000.00 8 35,000.00 10,000.00 9 35,000.00 50,000.00 10 35,000.00 2,500.00 3 RRR 0.15 Date Year CF PV function XNPV algorithm XNPV 1/1/2007 0 -500.00 -500.00 -500.00 1/1/2008 1 200.00 173.91 173.91 1/1/2010 3 100.00 65.75 65.73 1/1/2011 4 100.00 57.18 57.15 1/1/2012 5 100.00 49.72 49.70 1/1/2013 6 100.00 43.23 43.20 -110.21 -110.31 1/1/2009 366 h flow pattern, you can use the PV function for n annuity has equal payments at equal time intervals. r a series of cash flows that is periodic (equal een each cash flow) schedule of cash flows that is not necessarily esent value for a series of cash flows that is use the NPV function. Preset Value = How much future cash flows are worth today. Think of it as interest going backwards; if we put money in the bank today (present value) it will be worth some future value amount in the future: Present Value is the Opposite! We want to receive some cash amounts in the future, what amount do we have to put in the bank 1) today? PV function calculates present Value when the cash flows are the same and are separated by regular time periods. NPV function lets us calculate the present value when the amounts are not the same. XNPV function lets us calculate the present value when the amounts are not the same and 2) the times are not the same. When an asset has an annuity cash flow pattern, you can use Capital Investment Decision. An annuity has equal paymen 3) =PV( rate, nper, fv, type) intervals. =NPV( rate, CF1, CF2…. (as range or cells separated by Calculates the net present value for a series of cash flows tha 4) commas). NOTE: You cannot include Cash Flow at time 0. time between each cash flow) Returns the net present value for a schedule of cash flows tha =XNPV(rate, values, dates) NOTE: you can include Cash periodic. To calculate the net present value for a series of c 5) Flow at time 0. periodic, use the NPV function. Cash Flow matters in Finance. Cash going out of the wallet 6) is negative. Cash coming into the wallet is positive. For the borrow the PV is positive, the PMT is negative, and the FV is negative. For the Lender the PV is negative, the 7) PMT is positive, and the FV is positive. Be consistent with your unit of time! If you are calculating monthly payment, you need monthly interest rate and total number of months! (The period can be monthly, quarterly, 8) yearly or any other length). You are considering buying a machine that will yield $35,000.00 net cash flow in for the next ten years. If you must earn a minimum return on investment of 15.00%, 1 should we buy a machine if it costs ($165,500.00)? Net Cash Flow at end of each year = 35,000.00 Min Return (hurdle rate or Discount Rate) = 15% Cost = -165,500.00 Years 10 PV = -175,656.90 Difference = 10,156.90 NPV = 10,156.90 NPV = 3,991.86 2 Period CF CF 0 -165,500.00 1 35,000.00 40,000.00 2 35,000.00 40,000.00 3 35,000.00 40,000.00 4 35,000.00 35,000.00 5 35,000.00 35,000.00 6 35,000.00 35,000.00 7 35,000.00 20,000.00 8 35,000.00 10,000.00 9 35,000.00 50,000.00 10 35,000.00 2,500.00 3 RRR 0.15 Date Year CF PV function XNPV algorithm XNPV 1/1/2007 0 -500.00 -500.00 -500.00 #NAME? 1/1/2008 1 200.00 173.91 173.91 1/1/2010 3 100.00 65.75 65.73 1/1/2011 4 100.00 57.18 57.15 1/1/2012 5 100.00 49.72 49.70 1/1/2013 6 100.00 43.23 43.20 -110.21 -110.31 1/1/2009 366 h flow pattern, you can use the PV function for n annuity has equal payments at equal time intervals. r a series of cash flows that is periodic (equal een each cash flow) schedule of cash flows that is not necessarily esent value for a series of cash flows that is use the NPV function. FV function calculates the future value of a lump sum (invested at very beginning) or regular payments (called PMT and amount is the same for 1) each period and the amount is always the same). 2) PMT means periodic payment (same amount each period) PMT function calculates the period payment for a loan (For the Borrower or the Lender). The Amount of each PMT must be the same and the time 3) between each PMT must be the same. Cash Flow matters in Finance. Cash going out of the wallet is negative. Cash coming into the wallet is positive. Time period Matters in Finance: Example - if you are making monthly payments, then total number of periods must be 4) total number of months. For the borrow the PV is positive, the PMT is negative, and the FV is negative. For the Lender the PV is negative, the PMT is positive, and the FV 5) is positive. =FV(rate = period rate, nper = total number of periods, pmt means periodic payment, pv means amount invested or lent out today, type refers to the 6) PMT: PMT at end of period = 0, PMT at beginning of period = 1) =PMT(rate = period rate, nper = total number of periods, pv means amount invested or lent out today, fv means amount received after all the periods have elapsed or amount paid after all the periods have elapsed, type refers 7) to the PMT: PMT at end of period = 0, PMT at beginning of period = 1) Monthly PMT (end) -100.00 Amount put in years 30 Amount taken out Months Interest Annual Rate 9% . Monthly Rate FV PV years 35 Months Annual Rate 7.00% Monthly Rate Monthly PMT (begin) Leave to Kids 250,000.00 FV function calculates the future value of a lump sum (invested at very beginning) or regular payments (called PMT and amount is the same for 1) each period and the amount is always the same). 2) PMT means periodic payment (same amount each period) PMT function calculates the period payment for a loan (For the Borrower or the Lender). The Amount of each PMT must be the same and the time 3) between each PMT must be the same. Cash Flow matters in Finance. Cash going out of the wallet is negative. Cash coming into the wallet is positive. Time period Matters in Finance: Example - if you are making monthly payments, then total number of periods must be 4) total number of months. For the borrow the PV is positive, the PMT is negative, and the FV is negative. For the Lender the PV is negative, the PMT is positive, and the FV 5) is positive. =FV(rate = period rate, nper = total number of periods, pmt means periodic payment, pv means amount invested or lent out today, type refers to the 6) PMT: PMT at end of period = 0, PMT at beginning of period = 1) =PMT(rate = period rate, nper = total number of periods, pv means amount invested or lent out today, fv means amount received after all the periods have elapsed or amount paid after all the periods have elapsed, type refers 7) to the PMT: PMT at end of period = 0, PMT at beginning of period = 1) Monthly PMT (end) -100.00 Amount put in 36,000.00 years 30 Amount taken out 680,414.56 Months 360 Interest 644,414.56 Annual Rate 9% . Monthly Rate 0.750% FV 183,074.35 PV -183,074.35 years 35 Months 420 Annual Rate 7.00% Monthly Rate 0.5833% Monthly PMT (begin) 1,024.80 Leave to Kids 250,000.00

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Simple Interest, How to, interest rate, Compound interest, Calculating interest, Math Worksheets, Free Math Worksheets, Simple Interest Formula, word problems, free worksheet

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posted: | 9/28/2010 |

language: | English |

pages: | 32 |

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Formula for Calculating Interest Payments document sample

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