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    Rough Book

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    sharadkulloli
    This document contains information about cash flows and calculations for net present value (NPV) and internal rate of return (IRR) on a potential investment project. It lists cash flows over multiple years, calculates the NPV using a formula method, and determines that the NPV is positive so the project should be accepted. It also shows cash flows, calculates the IRR as 16% and states that if the IRR is greater than the opportunity cost of capital, the project should be accepted. It provides an explanation of how IRR assumes regular cash flows while XIRR can handle irregular cash flows.

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    Rough Book

    Uploaded by

    sharadkulloli
    45 views5 pages
    This document contains information about cash flows and calculations for net present value (NPV) and internal rate of return (IRR) on a potential investment project. It lists cash flows over multiple years, calculates the NPV using a formula method, and determines that the NPV is positive so the project should be accepted. It also shows cash flows, calculates the IRR as 16% and states that if the IRR is greater than the opportunity cost of capital, the project should be accepted. It provides an explanation of how IRR assumes regular cash flows while XIRR can handle irregular cash flows.

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    This document contains information about cash flows and calculations for net present value (NPV) and internal rate of return (IRR) on a potential investment project. It lists cash flows over multiple years, calculates the NPV using a formula method, and determines that the NPV is positive so the project should be accepted. It also shows cash flows, calculates the IRR as 16% and states that if the IRR is greater than the opportunity cost of capital, the project should be accepted. It provides an explanation of how IRR assumes regular cash flows while XIRR can handle irregular cash flows.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as xlsx, pdf, or txt
    45 views5 pages

    Rough Book

    Uploaded by

    sharadkulloli
    This document contains information about cash flows and calculations for net present value (NPV) and internal rate of return (IRR) on a potential investment project. It lists cash flows over multiple years, calculates the NPV using a formula method, and determines that the NPV is positive so the project should be accepted. It also shows cash flows, calculates the IRR as 16% and states that if the IRR is greater than the opportunity cost of capital, the project should be accepted. It provides an explanation of how IRR assumes regular cash flows while XIRR can handle irregular cash flows.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as xlsx, pdf, or txt
    of 5

    FV

    Years
    Interest rate
    -10000
    2750
    4250
    3250
    2750

    1/1/2008
    1/3/2008
    10/30/2008
    2/1/2009
    4/1/2009

    C0
    C1
    C2
    C3
    C4
    C5

    3000
    40.3681%

    900
    1
    10%

    NPV by formula method

    -2500
    900
    800
    700
    600
    500
    Sum
    225.53

    -2,500.00
    818.18
    661.16
    525.92
    409.81
    310.46
    225.53
    POSITIVE VALUE

    Accept the project

    Year

    Cashflow

    0
    1

    -16000
    8000

    2
    3

    7000
    6000

    IRR

    16%

    If 16% > k (opportunity cost of capital/required rate of return/cutoff rate/hurdle rate)

    IRR is periodic cash flows (annually monthly, etc)


    XIRR is irregular cash flows. XIRR makes more sense to use this because cash/earnings are received throughout
    the year and not at the end of the year.

    An easier way to explain this is that XIRR accounts for the cash flows when they are received, rather than IRR
    which values the cash flows at the end of the month. Given the essence of TVM and the concept that present cash
    flows are worth more than those in the future, XIRR is a more accurate way to calculate the return of cash flows as
    they occur in real time.

    IRR assumes that all specified cash flows are made at regular intervals, and thus expresses the calculated IRR
    value as a percentage value for that specific interval. You stated that you were specifying monthly cashflows,
    therefore Excel calculates a monthly IRR (that must be multiplied by 12 to get an annualized IRR). If your
    cashflows had been yearly cashflows, the calculated IRR will be an annual IRR.
    XIRR allows cash flows to happen at any time, at irregular intervals, and thus the timing of the cash flows is
    considered in the calculated result, and no adjustment (i.e., multiplying by 12) is required. The calculated XIRR is
    valid for the entire timeframe.

    accept the project

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