Basic Financial Calculations MGT 4850 Spring 2009 University of Lethbridge

Basic Financial Calculations

MGT 4850

Spring 2009

University of Lethbridge

http://www.media.mit.edu/physics/publications/books/nmm/files/index.html

http://www.conference-service.com/conferences/uz/complex-systems.html

http://www.finance-innovation.org/risk09/

http://www.efinancialcareers-canada.com/

http://www.global-derivatives.com/

Topics

• http://www.santafe.edu/education/csss/csss08/programinfo.php

• Net Present Value

• Internal Rate of Return

• Future Value

• Pension and accumulation problem

• Continuously Compounded Interest

PV and NPV

Discount rate 10%  

Present value $379.08 <-- =NPV(B2,B7:B11)

  Cash  

Year flow  

1 100  

2 100  

3 100  

4 100  

5 100  

Exact NPV problem in Excel

Discount rate 10%    

Net present value -20.92 <-- =G7+NPV(G2,G8:G12)  

  Cash    

Year flow    

0 -400    

1 100    

2 100    

3 100    

4 100    

5 100    

IRR

IRR 7.931% <-- =IRR(B19:B24)

NPV -20.92  For discount rate 10%

  Cash  

Year flow  

0 -400  

1 100  

2 100  

3 100  

4 100  

5 100  

COMPUTING THE VALUE OF A GROWING INFINITE ANNUITY

Please, recall the Dividend Growth Model

(p.9 bottom)

INTERNAL RATE OF RETURN

NPV of a project set to 0, discount rate that makes future cash flow equal the initial investment

USING THE IRR IN A LOAN TABLE (p.12)

Recall loan amortization

USING A LOAN TABLE TO FIND THE IRR

Goal seek is under the Tools Menu

(Data>What if analysis> Goal Seek.

Loan amortization

Loan amortization 2

1 step calculate IRR

Multiple Internal Rates of Return

Discount rate 6%    

NPV -3.99 <-- =NPV(B3,B9:B13)+B8  

  Cash    

Year flow    

0 -145    

1 100    

2 100    

3 100    

4 100    

5 -275    

Multiple Internal Rates of Return

Bond Cash Flow

Loan Amortzation

Future Value Problems (p.19)

FV (p. 20)

Annuity problems (p. 22)

Compounding periodsContinuous compounding (p.26)

Continuous discounting

Continuous Return

Table

• Type in the first column # compounding periods• Header of the second column = cell with interest

rate• Highlight the table area

• Activate the command Data What if analysis/Table

Dated Cash Flows

• XIRR – for IRR p 30

• XNPV – p.31