Attems: Do No Harm/10 1. Capital budgeting related functions What functions are used to calculate values for data used in capital budgeting? Capital budgeting decisions require you to evaluate the acceptability of investment projects through the use of techniques as the Present Value (NPV) method, Internal Rate of Return (IRR) method, Modified Internal Rate of Return (MR) methodet. While these methode sound complex, Excel makes it really way to calculate the numbers that are used in analysis of evaluating vestment fects The NPV method compares the present value of cash flows in a project with the present values cash outflows of the project. The value of the difference is called the set present value (NPV). The NPV of a given project is compared with the NIV other projects. The general rule of thumb to consider further a mutually exclusive of independentti NPV positive and the project with the largest Consider oma tromponible project that you are evaluating and calotate the propery NPV Mint and contine to two decimal nace Also, te sure to enter a minus sign it the answer a negative Description 1 Data 2 Annual Re rinvestito 4 Cashow me! 5 Chow from year? $5,000 3,000 2. 1 Data 2 3 Description 9% - $5,000 $3,000 $3,500 $3,250 Annual Discount Rate Initial Investment cost Cash inflow from year 1 Cash inflow from year 2 Cash inflow from year 1 4 5 6 7 8 Net Present Value IF IMPORTANT NOTE: The NPV function in Excel does not include the initial investment value in its arguments. You have to manually add this value to your calculations to derive the correct value. Since the initial investment is a cash outflow the NPV calculation would hvolve adding negative value. Some other commonly used capital budgeting techniques are the IRR and the MIRR methods. You will learn more about them during your finance course. For the purpose of this module you should be able to understand how Excel functions can be used to calculate the values For MIRR calculations use 4% as the rate at which the investment is financed and assume that the cash flows from the project can be reinvested at the rate of 5. (Hint: Round all calculations to two decimal places.) 1 2 Description - $3,000 $800 3 Data Initial Investment cost Cash inflow from year 1 Cash inflow from year 2 Cash inflow from year 3 Cash inflow from year 4 4 * 5 $900 $1,000 $1,300 6 7 2 TRR 8 9 10 B 1 Data Description 49 2 Finance rate 3 59 4 53,000 5 5000 Reinvestment rate Initial Investment cost Cash now from year 1 Cash flow from year 2 Cash flow from year Cash flow from year 4 MIRR 5900 $1,000 $1,300 B 9 10 Grade i Now Save a Continue