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XNPV: Calculating net present value given irregular inputs

From: Excel 2010: Financial Functions in Depth

Video: XNPV: Calculating net present value given irregular inputs

In the previous movie I showed you how to use the NPV function to find the net present value of an investment. That function assumes that all of the cash flows happen at regular intervals, every month, every two months, every year, and so on. If you have a series of cash flows that occur at irregular intervals, you need to use the XNPV function to find the net present value. So for the XNPV function, you have two sets of arguments. The first is the discount rate and the discount rate is the return that you can expect on a guaranteed investment.

XNPV: Calculating net present value given irregular inputs

In the previous movie I showed you how to use the NPV function to find the net present value of an investment. That function assumes that all of the cash flows happen at regular intervals, every month, every two months, every year, and so on. If you have a series of cash flows that occur at irregular intervals, you need to use the XNPV function to find the net present value. So for the XNPV function, you have two sets of arguments. The first is the discount rate and the discount rate is the return that you can expect on a guaranteed investment.

So for example, if you were able to invest in U.S. Treasury bill with a 5% rate, then that would serve as the discount rate. Next you need the values anddates. So the first of the values and those are simply the cash flows. Negative cash flows in this number format are shown in parentheses so we have a buy-in of $108,000. And the next each one of these cash flows you have the date. So we have May 1, 2011, June 1, 2011, August 1, 2011.

So you see that those dates occur at irregular intervals and again if you're cash flows occur at regular intervals then it's simpler to use NPV. So now let's go ahead and create our formula. I'll click in cell C15, type an equal sign, an then xnpv( and then the discount rate which is in cell c2, then a comma, then the values and those are in cells B5 through B12. So I'll just select those cells, type a comma, and then the dates of those cash flows are in cells C5 through C12, type a right parentheses. All the references look good, press Tab, and we see that the investment has a net present value of $27,221.31.

Now what would happen if the discount rate went down? In other words, what would happen if you were only able to get say a 2% return from T-Bills? Well, that would increase the net present value because you have lower guaranteed income from a guaranteed investment. So for example, let's say that I change the value in cell C2 to 2% then I just typed the 2, because I already have the percentage format applied. So I haven't the formula at all. Just changing that one input, then I can press Enter, and we see that the net present value goes up substantially.

So remember that if you have cash flows that occur at regular intervals then use NPV. If your cash flows occur at irregular intervals then use XNPV.

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Excel 2010: Financial Functions in Depth

52 video lessons · 13303 viewers

Curt Frye
Author

 
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  1. 2m 11s
    1. Welcome
      1m 6s
    2. Using the exercise files
      36s
    3. Disclaimer
      29s
  2. 28m 32s
    1. PMT: Calculating a loan payment
      3m 31s
    2. PPMT and IPMT: Calculating principal and interest per loan payment
      4m 18s
    3. CUMPRINC and CUMIPMT: Calculating cumulative principal and interest paid between periods
      4m 30s
    4. ISPMT: Calculating interest paid during a specific period
      2m 13s
    5. EFFECT and NOMINAL: Finding nominal and effective interest rates
      3m 31s
    6. ACCRINT and ACCRINTM: Calculating accrued interest for investments
      4m 15s
    7. RATE: Discovering the interest rate of an annuity
      2m 41s
    8. NPER: Calculating the number of periods in an investment
      3m 33s
  3. 19m 5s
    1. SLN: Calculating depreciation using the straight-line method
      1m 48s
    2. DB: Calculating depreciation using the declining balance method
      3m 10s
    3. DDB: Calculating depreciation using the double-declining balance method
      3m 20s
    4. SYD: Calculating depreciation for a specified period
      2m 13s
    5. VDB: Calculating declining balance depreciation for a partial period
      3m 24s
    6. AMORDEGRC: Calculating depreciation using a depreciation coefficient
      2m 27s
    7. AMORLINC: Calculating depreciation for each accounting period
      2m 43s
  4. 22m 33s
    1. FV: Calculating the future value of an investment
      2m 48s
    2. FVSCHEDULE: Calculating the future value of an investment with variable returns
      2m 21s
    3. PV: Calculating the present value of an investment
      2m 6s
    4. NPV: Calculating the net present value of an investment
      3m 17s
    5. IRR: Calculating internal rate of return
      2m 33s
    6. XNPV: Calculating net present value given irregular inputs
      2m 32s
    7. XIRR: Calculating internal rate of return for irregular cash flows
      1m 48s
    8. MIRR: Calculating internal rate of return for mixed cash flows
      2m 2s
    9. DISC: Calculating the discount rate of a security
      3m 6s
  5. 24m 12s
    1. COUPDAYBS: Calculating total days between coupon beginning and settlement
      3m 2s
    2. COUPDAYS: Calculating days in the settlement date's coupon period
      2m 48s
    3. COUPDAYSNC: Calculating days from the settlement date to the next coupon date
      3m 1s
    4. COUPNCD: Calculating the next coupon date after the settlement date
      2m 43s
    5. COUPNUM: Calculating the number of coupons between settlement and maturity
      2m 55s
    6. COUPPCD: Calculating the date of a coupon due immediately before settlement
      3m 4s
    7. DURATION: Calculating the annual duration of a security
      3m 20s
    8. MDURATION: Calculating the duration of a security using the modified Macauley method
      3m 19s
  6. 28m 43s
    1. DOLLARDE and DOLLARFR: Converting between fractional prices and decimal prices
      2m 36s
    2. INTRATE: Calculating the interest rate of a fully invested security
      2m 50s
    3. RECEIVED: Calculating the value at maturity of a fully invested security
      2m 46s
    4. PRICE: Calculating the price of a security that pays periodic interest
      3m 19s
    5. PRICEDISC: Calculating the price of a discounted security
      2m 48s
    6. PRICEMAT: Calculating the price of a security that pays interest at maturity
      1m 57s
    7. TBILLEQ: Calculating the bond-equivalent yield for a Treasury bill
      1m 50s
    8. TBILLPRICE: Calculating the price for a Treasury bill
      1m 31s
    9. TBILLYIELD: Calculating the yield of a Treasury bill
      1m 41s
    10. YIELD: Calculating the yield of a security that pays periodic interest
      2m 59s
    11. YIELDDISC: Calculating the annual yield for a discounted security
      2m 9s
    12. YIELDMAT: Calculating the annual yield of a security that pays interest at maturity
      2m 17s
  7. 12m 1s
    1. ODDFPRICE: Calculating the price of a security with an odd first period
      3m 17s
    2. ODDFYIELD: Calculating the yield of a security with an odd first period
      3m 3s
    3. ODDLPRICE: Calculating the price of a security with an odd last period
      2m 44s
    4. ODDLYIELD: Calculating the yield of a security with an odd last period
      2m 57s
  8. 1m 5s
    1. Additional resources
      1m 5s

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