Capital Budgeting Methods/Functions:

Excel has three traditional capital budgeting functions available as well as two of these functions that
are date specific. This worksheet illustrates the use of the NPV, the IRR, and MIRR functions. In
addition, using the NPV function to determine a PI (Profitability Index) is all illustrated. Some
solution detail is provided below in addition to the Excel function solutions.
The date specific functions are presented in the XNPV and XIRR Example worksheet.

Caution: When using the NPV function, Excel treats the first cash flow as occurring at time period t =
1, not t = 0. In contrast, with all of the other capital budgeting functions; the first cash flow is assumed
to occur in period t = 0.

Example Cash Flows for Projects Y and Z: NPV, PI, IRR, and MIRR
(CF/Time )

(t=0 )

(t=1 )

(t=2 )

(t=3 )

(t=4 )

(t=5 )

(Project Y )

-1200000

420,000

480,000

320,000

280,000

380,000

(Project Z )

-1800000

450,000

540,000

400,000

710,000

900,000

(k )

12.60%

(Net Present Value (NPV) )

(NPV Solution Detail )

(Excel NPV Function S

Project Y
Time
1
2
3
4
5
(PV Inflows )
(PV Outflows )
(NPV )

Cash Flows
420,000
480,000
320,000
280,000
380,000

(Profitablity Index (PI) )

(k )

Project Z
PV Cash Flows
373002
378586
224148
174182
209938
1,359,856.43
-1200000
159,856.43

Cash Flows
450,000
540,000
400,000
710,000
900,000

PV Cash Flows
399645
425909
280185
441677
497222
2,044,638.13
-1800000
244,638.13

NPV
Recommendations:

Accept both Project Y

Z as their NPV's are

(CF/Time )

(t=0 )

(t=1 )

(t=2 )

(t=3 )

(t=4 )

(t=5 )

(Project Y )

-1200000

420,000

480,000

320,000

280,000

380,000

(Project Z )

-1800000

450,000

540,000

400,000

710,000

900,000

(PI Solution Detail )

Profitability

(Excel PI Function Solu

Project Y

(k )

Project Z

Index (PI)
(PV Inflows )
(PV Outflows )
(PI )

1,359,856.43
1200000
1.133

PI

2,044,638.13
1800000
1.136

Recommendations:

Accept both Project

as their PI's are grea
(Internal Rate of Return (IRR) )

(CF/Time )

(t=0 )

(t=1 )

(t=2 )

(t=3 )

(t=4 )

(t=5 )

(Project Y )

-1200000

420,000

480,000

320,000

280,000

380,000

(Project Z )

-1800000

450,000

540,000

400,000

710,000

900,000

(IRR Solution Detail )

Time
1
2
3
4
5
(PV Inflows )
(PV Outflows )

(Excel IRR Function So

Project Y

IRR : 18.23%

Project Z

IRR: 17.39%

Cash Flows

PV Cash Flows

Cash Flows

PV Cash Flows

420,000
480,000
320,000
280,000
380,000

355234
343378
193618
143291
164479
1,200,000.00
-1200000

450,000
540,000
400,000
710,000
900,000

383332
391850
247257
373861
403699
1,800,000.00
-1800000

(k )
IRR
Recommendations:

Accept both Project Y

as their IRR's the exc
capital for the project

Recommendations:

(NPV )

Accept both Project Y

as their IRR's the exc
capital for the project

0.00

Modified Internal Rate of Return (MIRR)

(CF/Time )

(t=0 )

(t=1 )

(t=2 )

(t=3 )

(t=4 )

(t=5 )

(Project Y )

-1200000

420,000

480,000

320,000

280,000

380,000

(Project Z )

-1800000

450,000

540,000

400,000

710,000

900,000

Terminal Value and MIRR Solution Detail

Project Y
t
t
t
t
t
t=0
MIRR

=1
=2
=3
= 4
= 5
-1200000
15.45%

Project Z
t
t
t
t
t
t=0
MIRR

=1
=2
=3
= 4
= 5
-1800000
15.51%

CF
# Years
420,000
4
480,000
3
320,000
2
280,000
1
Bob
Johnston:
This
is
the
interest
380,000
0
rate that will make
the PV of terminal
Sum

FV
675,154.01
685,261.62
405,720.32
315,280.00
380,000.00
2,461,415.95

CF
# Years
450,000
4
540,000
3
400,000
2
710,000
1
Bob Johnston:
This900,000
is the interest
0
rate that will make
the PV of the Sum

FV
723,379.30
770,919.32
507,150.40
799,460.00
900,000.00
3,700,909.02

value equal to the

PV of the outflow.
The "Rate"
function in Excel
has been used to
determine this
interest rate.

terminal value
equal to the PV of
the outflow.

Bob Johnston:
Terminal Value.

(t = 5)

Bob Johnston:
Terminal Value.

(t = 5)

Recommendation

Accept both Proje

as their MIRR's e
capital for the pro

f these functions that

IRR functions. In
ustrated. Some

ksheet.

rring at time period t =

st cash flow is assumed

(Additional Example Applications for NPV, PI, IRR and MIRR

(CF/Time )

(t=0 )

(Project M )

-2600000

585,000

(Project N )

-3400000

995,000

(k )

Excel NPV Function Solutions )

12.60%
Project Y

14.80%

(Excel NPV Function Solutions )

(k )

Project Z
NPV

Recommendations:
Accept both Project Y and Project
Z as their NPV's are positive.

(t=1 )

14.80%
Project M

(CF/Time )

(t=0 )

(Project M )

-2600000

585,000

(Project N )

-3400000

995,000

(k )

Excel PI Function Solutions )

12.60%
Project Y

(t=1 )

14.80%
(Excel PI Function Solutions )
(k )

14.80%
Project M

Project Z
PI

Recommendations:
Accept both Project Y and Project Z
as their PI's are greater than one.

(CF/Time )

(t=0 )

(Project M )

-2600000

585,000

(Project N )

-3400000

995,000

(k )

Excel IRR Function Solutions )

12.60%
Project Y

14.80%
(Excel IRR Function Solutions )
(k )

Project Z
IRR

Recommendations:
Accept both Project Y and Project Z
as their IRR's the exceed cost of
capital for the projects.

(t=1 )

14.80%
Project M

Recommendations:
Accept both Project Y and Project Z
as their IRR's the exceed cost of
capital for the projects.

(CF/Time )

(t=0 )

(Project M )

-2600000

585,000

(Project N )

-3400000

995,000

(k )

(t=1 )

14.80%

Excel MIRR Function Solution

Excel MIRR Function Solution

Project Y
(k )
MIRR

(k )
12.60%
MIRR

Excel MIRR Function Solution

Project Z
(k )
MIRR

12.60%

Recommendations:
Accept both Project Y and Project Z
as their MIRR's exceed the cost of
capital for the projects.

14.80%
Project M

for NPV, PI, IRR and MIRR )

(t=2 )

(t=3 )

(t=4 )

(t=5 )

(t = 6 )

755,000

1,065,000

744,000

645,000

880,000

745,000

1,220,000

1,830,000

Project N

(t=2 )

(t=3 )

(t=4 )

(t=5 )

(t = 6 )

755,000

1,065,000

(t=4 )

(t=5 )

(t = 6 )

755,000

1,065,000

744,000

645,000

880,000

745,000

1,220,000

1,830,000

Solutions )

Project N

(t=2 )

(t=3 )

744,000

645,000

880,000

745,000

1,220,000

1,830,000

n Solutions )

Project N

(t=2 )

(t=3 )

(t=4 )

(t=5 )

(t = 6 )

755,000

1,065,000

744,000

645,000

880,000

745,000

1,220,000

1,830,000

on Solution

Project N

Capital Budgeting Methods/Functions:

Excel has three traditional capital budgeting functions available as well as two of these functions that
are date specific. This worksheet illustrates the use of the NPV, the IRR, and MIRR functions. In
addition, using the NPV function to determine a PI (Profitability Index) is all illustrated. Some
solution detail is provided below in addition to the Excel function solutions.
The date specific functions are presented in the XNPV and XIRR Example worksheet.

Caution: When using the NPV function, Excel treats the first cash flow as occurring at time period t =
1, not t = 0. In contrast, with all of the other capital budgeting functions; the first cash flow is assumed
to occur in period t = 0.

Example Cash Flows for Projects Y and Z: NPV, PI, IRR, and MIRR
(CF/Time )

(t=0 )

(t=1 )

(t=2 )

(t=3 )

(t=4 )

(t=5 )

(Project Y )

-1200000

420,000

480,000

320,000

280,000

380,000

(Project Z )

-1800000

450,000

540,000

400,000

710,000

900,000

(k )

12.60%

(Net Present Value (NPV) )

(NPV Solution Detail )

(Excel NPV Function So

Project Y
Time
1
2
3
4
5
(PV Inflows )
(PV Outflows )
(NPV )

Cash Flows
420,000
480,000
320,000
280,000
380,000

(Profitablity Index (PI) )

(k )

Project Z
PV Cash Flows
373002
378586
224148
174182
209938
1,359,856.43
-1200000
159,856.43

Cash Flows
450,000
540,000
400,000
710,000
900,000

PV Cash Flows
399645
425909
280185
441677
497222
2,044,638.13
-1800000
244,638.13

NPV
Recommendations:

Accept both Project Y

Z as their NPV's are p

(CF/Time )

(t=0 )

(t=1 )

(t=2 )

(t=3 )

(t=4 )

(t=5 )

(Project Y )

-1200000

420,000

480,000

320,000

280,000

380,000

(Project Z )

-1800000

450,000

540,000

400,000

710,000

900,000

(PI Solution Detail )

Profitability

(Excel PI Function Solu

Project Y

(k )

Project Z

Index (PI)
(PV Inflows )
(PV Outflows )
(PI )

1,359,856.43
1200000
1.133

PI

2,044,638.13
1800000
1.136

Recommendations:

Accept both Project Y

as their PI's are grea
(Internal Rate of Return (IRR) )

(CF/Time )

(t=0 )

(t=1 )

(t=2 )

(t=3 )

(t=4 )

(t=5 )

(Project Y )

-1200000

420,000

480,000

320,000

280,000

380,000

(Project Z )

-1800000

450,000

540,000

400,000

710,000

900,000

(IRR Solution Detail )

Time
1
2
3
4
5
(PV Inflows )
(PV Outflows )

(Excel IRR Function So

Project Y

IRR : 18.23%

Project Z

IRR: 17.39%

Cash Flows

PV Cash Flows

Cash Flows

PV Cash Flows

420,000
480,000
320,000
280,000
380,000

355234
343378
193618
143291
164479
1,200,000.00
-1200000

450,000
540,000
400,000
710,000
900,000

383332
391850
247257
373861
403699
1,800,000.00
-1800000

(k )
IRR
Recommendations:

Accept both Project Y

as their IRR's the exce
capital for the project

Recommendations:

(NPV )

Accept both Project Y

as their IRR's the exce
capital for the project

0.00

Modified Internal Rate of Return (MIRR)

(CF/Time )

(t=0 )

(t=1 )

(t=2 )

(t=3 )

(t=4 )

(t=5 )

(Project Y )

-1200000

420,000

480,000

320,000

280,000

380,000

(Project Z )

-1800000

450,000

540,000

400,000

710,000

900,000

Terminal Value and MIRR Solution Detail

Project Y
t
t
t
t
t
t=0
MIRR

=1
=2
=3
= 4
= 5
-1200000
15.45%

Project Z
t
t
t
t
t
t=0
MIRR

=1
=2
=3
= 4
= 5
-1800000
15.51%

CF
# Years
420,000
4
480,000
3
320,000
2
280,000
1
Bob
Johnston:
This
is
the
interest
380,000
0
rate that will make
the PV of terminal
Sum

FV
675,154.01
685,261.62
405,720.32
315,280.00
380,000.00
2,461,415.95

CF
# Years
450,000
4
540,000
3
400,000
2
710,000
1
Bob Johnston:
This900,000
is the interest
0
rate that will make
the PV of the Sum

FV
723,379.30
770,919.32
507,150.40
799,460.00
900,000.00
3,700,909.02

value equal to the

PV of the outflow.
The "Rate"
function in Excel
has been used to
determine this
interest rate.

terminal value
equal to the PV of
the outflow.

Bob Johnston:
Terminal Value.

(t = 5)

Bob Johnston:
Terminal Value.

(t = 5)

Recommendations

Accept both Proje

as their MIRR's e
capital for the pro

of these functions that

MIRR functions. In
ustrated. Some

ksheet.

rring at time period t =

st cash flow is assumed

(Additional Example Applications for NPV, PI, IRR and MIRR

(CF/Time )

(t=0 )

(Project M )

-2600000

585,000

(Project N )

-3400000

995,000

(k )

Excel NPV Function Solutions )

12.60%
Project Y
159856

14.80%

(Excel NPV Function Solutions )

(k )

Project Z
244638

Recommendations:
Accept both Project Y and Project
Z as their NPV's are positive.

(t=1 )

NPV

14.80%
Project M
251004

(CF/Time )

(t=0 )

(Project M )

-2600000

585,000

(Project N )

-3400000

995,000

(k )

Excel PI Function Solutions )

12.60%
Project Y
1.133

(t=1 )

14.80%
(Excel PI Function Solutions )
(k )

Project Z
1.136

14.80%
Project M
1.097

PI

Recommendations:
Accept both Project Y and Project Z
as their PI's are greater than one.

(CF/Time )

(t=0 )

(Project M )

-2600000

585,000

(Project N )

-3400000

995,000

(k )

Excel IRR Function Solutions )

12.60%
Project Y
18.23%

14.80%
(Excel IRR Function Solutions )
(k )

Project Z
17.39%

Recommendations:
Accept both Project Y and Project Z
as their IRR's the exceed cost of
capital for the projects.

(t=1 )

IRR

14.80%
Project M
18.01%

Recommendations:
Accept both Project Y and Project Z
as their IRR's the exceed cost of
capital for the projects.

(CF/Time )

(t=0 )

(Project M )

-2600000

585,000

(Project N )

-3400000

995,000

(k )

(t=1 )

14.80%

Excel MIRR Function Solution

Excel MIRR Function Solution

Project Y
(k )
MIRR

(k )
12.60%
15.45%

Excel MIRR Function Solution

Project Z
(k )
MIRR

12.60%
15.51%

Recommendations:
Accept both Project Y and Project Z
as their MIRR's exceed the cost of
capital for the projects.

MIRR

14.80%
Project M
16.58%

for NPV, PI, IRR and MIRR )

(t=2 )

(t=3 )

(t=4 )

(t=5 )

(t = 6 )

755,000

1,065,000

744,000

645,000

880,000

745,000

1,220,000

1,830,000

Project N
-107995

(t=2 )

(t=3 )

(t=4 )

(t=5 )

(t = 6 )

755,000

1,065,000

(t=4 )

(t=5 )

(t = 6 )

755,000

1,065,000

744,000

645,000

880,000

745,000

1,220,000

1,830,000

Solutions )

Project N
1

(t=2 )

(t=3 )

744,000

645,000

880,000

745,000

1,220,000

1,830,000

n Solutions )

Project N
13.40%

(t=2 )

(t=3 )

(t=4 )

(t=5 )

(t = 6 )

755,000

1,065,000

744,000

645,000

880,000

745,000

1,220,000

1,830,000

on Solution

Project N
13.88%

Capital Budgeting Methods/Functions: XNPV and XIRR

The basic NPV and IRR functions in Excel treat the cash flows as if they all occur in one
period (one year) intervals. In fact, with most projects cash flows occur at intervals
different from once a year.
The XNPV and XIRR functions determine NPV and IRR respectively by the exact dates
when cash flows are expected to occur. When using this functions it is necessary to specific
for each cash flow a date when the cash flow occurred.

(General NPV and IRR Functions in Excel )

(CF/Time )
(t=0 )
(t=1 )
(t=2 )

(t=3 )

(t=4 )

(t=5 )

(Project Y )

-1200000

420,000

480,000

320,000

280,000

380,000

(Project Z )

-1800000

450,000

540,000

400,000

710,000

900,000

(k )

12.60%

(NPV )

(IRR )

(Project Y )

159,856

18.23%

(Project Z )

244,638

17.39%

(Date Specific NPV and IRR Functions in Excel )

(CF Dates )
1-Jan-02
1-Jan-03
1-Jan-04

1-Jan-05

1-Jan-06 1-Jan-07

(Project Y )

-1200000

420,000

480,000

320,000

280,000

380,000

(Project Z )

-1800000

450,000

540,000

400,000

710,000

900,000

(k )

12.60%

(XNPV )
(Project Y )
(Project Z )

(XIRR )

y all occur in one

at intervals

y the exact dates

ecessary to specific

(CF/Time )

(t=0 )

(Project M )

-2600000

585,000

744,000

(Project N )

-3400000

995,000

745,000

(k )

(t=2 )

14.80%

(NPV )
(Project Y )

(t=1 )

251,004

(IRR )
18.01%

(Project Z )
(107,995)
13.40%
(Additional Example Applications for XNPV and XIRR )
(CF/Time )

15-Feb-2003

15-Feb-2004

15-Feb-2005

(Project M )

-2600000

585,000

744,000

(Project N )

-3400000

995,000

745,000

(k )

14.80%

(XNPV )
(Project M )
(Project N )

(XIRR )

(t=3 )

(t=4 )

645,000

880,000

1,220,000

1,830,000

(t=5 )
755,000

t=6
1,065,000

15-Feb-2006 15-Feb-2007 15-Feb-2008 15-Feb-2009

645,000

880,000

1,220,000

1,830,000

755,000

1,065,000

Capital Budgeting Methods/Functions: XNPV and XIRR

The basic NPV and IRR functions in Excel treat the cash flows as if they all occur in one
period (one year) intervals. In fact, with most projects cash flows occur at intervals
different from once a year.
The XNPV and XIRR functions determine NPV and IRR respectively by the exact dates
when cash flows are expected to occur. When using this functions it is necessary to specific
for each cash flow a date when the cash flow occurred.

(General NPV and IRR Functions in Excel )

(CF/Time )
(t=0 )
(t=1 )
(t=2 )

(t=3 )

(t=4 )

(t=5 )

(Project Y )

-1200000

420,000

480,000

320,000

280,000

380,000

(Project Z )

-1800000

450,000

540,000

400,000

710,000

900,000

(k )

12.60%

(NPV )

(IRR )

(Project Y )

159,856

18.23%

(Project Z )

244,638

17.39%

(Date Specific NPV and IRR Functions in Excel )

(CF Dates )
1-Jan-02
1-Jan-03
1-Jan-04

1-Jan-05

1-Jan-06 1-Jan-07

(Project Y )

-1200000

420,000

480,000

320,000

280,000

380,000

(Project Z )

-1800000

450,000

540,000

400,000

710,000

900,000

(Project Y )

(XNPV )
#REF!

(XIRR )
18.22%

(Project Z )

#REF!

17.38%

y all occur in one

at intervals

y the exact dates

ecessary to specific

(CF/Time )

(t=0 )

(Project M )

-2600000

585,000

744,000

(Project N )

-3400000

995,000

745,000

(k )

(t=2 )

14.80%

(NPV )
(Project Y )

(t=1 )

251,004

(IRR )
18.01%

(Project Z )
(107,995)
13.40%
(Additional Example Applications for XNPV and XIRR )
(CF/Time )

15-Feb-2003

15-Feb-2004

15-Feb-2005

(Project M )

-2600000

585,000

744,000

(Project N )

-3400000

995,000

745,000

(k )

(Project M )

14.80%

(XNPV )
#REF!

(XIRR )
18.00%

(Project N )

#REF!

13.39%

(t=3 )

(t=4 )

645,000

880,000

1,220,000

1,830,000

(t=5 )
755,000

t=6
1,065,000

15-Feb-2006 15-Feb-2007 15-Feb-2008 15-Feb-2009

645,000

880,000

1,220,000

1,830,000

755,000

1,065,000

Year
0
1
2
3
4
5

IRR # 1
IRR # 2

Cash Flow
-145
100
100
100
100
-265

3.91%
30.28%

Cost of
Capital
0%
3%
3.91%
6%
9%
12%
15%
18%
21%
24%
27%
30%
30.28%
33%
36%
39%

Two
IRRs
Cost
of Capital

NPV
$10.00
$1.88
$0.00
$3.49
$6.74
$8.37
$8.75
$8.17
$6.88
$5.03
$2.79
$0.25
$0.00
$2.49
$5.38
$8.35

(CF/Time )

(t=0 )

(t=1 )

(t=2 )

(t=3 )

(t=4 )

(t=5 )

(Project M )

-2600000

585,000

744,000

645,000

880,000

755,000

(Project N )

-3400000

995,000

745,000

1,220,000

1,830,000

(IRR )

(MIRR )

(k )

14.80%
(NPV )

(PI )

(Project Y )

251,004

1.097

18.01%

16.58%

(Project Z )

(107,995)

0.968

13.40%

13.88%

(CF Dates )

15-Jul-01

15-Jul-02 15-Jul-03

15-Jul-04

15-Jul-05

(Project Y )

-2600000

585000

744000

645000

880000

(Project Z )

-3400000

995000

745000

1220000

1830000

(Project Y )
(Project Z )

(XNPV )
(XIRR )
#REF!
18.01%
#REF!

13.39%

15-Jul-06
755000

(t = 6 )
1,065,000

15-Jul-07
1065000