How to Calculate NPV, IRR & ROI in Excel || Net Present Value || Internal Rate of Return

#npv #irr #excel
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Tutorial demonstrating how to calculate NPV, IRR, and ROI for an investment. Demonstrates manual calculation of present values as well as the use of NPV and IRR functions in Excel. The spreadsheet used can be downloaded at:

Capital Budgeting includes the analysis of various projects with financial measurements such as Net Present Value (NPV), Internal Rate of Return (IRR) and Return on Investment (ROI). This video discusses all of these concepts briefly while demonstrating the calculation of them using Excel.

Excel Functions:
NPV
IRR

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Comments

  • Matt, thanks for this. Very helpful. I do have a question around ROI. I created a similar spreadsheet as urs. My year 0 investment is 3MM and net annual cashflow for years 1 thru 5 is $9MM. My ROI is only coming out to be 160% when I use your method. Isn't the ROI the return off the $3MM initial investment only? If so, even for the 1st year, shouldn't it be around 300%? (3MM returning 9MM net)

    Lawrence Ayson July 1, 2020 2:59 am Reply
  • how can saved or download this video freely

    Berihun Yimer July 1, 2020 2:59 am Reply
  • this video is good but i want to calculate the project cost and benefits by net present values

    Berihun Yimer July 1, 2020 2:59 am Reply
  • just everything I needed in a tutorial

    Salah-Eddine Aros July 1, 2020 2:59 am Reply
  • hi, for the last line, why don t you just divide 1 cumulative cashflow wioth the other one, you arrive also at 15pc

    Like design July 1, 2020 2:59 am Reply
  • Hi Matt – thanks for a really great tutorial. Everything was super clear!

    I have a couple of questions that I hope you can help with about the IRR forumula (6th minute of video) when you said something along the lines of "If there is more than one year where the net cashflow is negative, then you will get more than one IRR – so this formula is useful only where net cash outflow is in year zero"

    Question 1) If I have cashflow for a project that occurs over multiple years, as well as some cashin during those years, then how can i calculate the IRR?

    Question 2) If I have a project with future expansion phases, e.g. Phase 1 with capex in Year 0 and Year 1, then Phase 2 with capex in Year 2 and Year 3, all contributing to the same overall cashflow, then how can I work out the IRR of the overall project?

    Thanks again!

    Kevin McLoughlin July 1, 2020 2:59 am Reply
  • What if you have a perpetuity after year 5, how could I calculate the IRR?

    joaopaulomg2007 July 1, 2020 2:59 am Reply
  • If it says expects a rate of return of 19% is that that same as cost of capital ?

    Hugo Again July 1, 2020 2:59 am Reply
  • How did you get 310k and 425k?

    Miguel July 1, 2020 2:59 am Reply
  • Thanks Matt….great refresher.

    GRACE HARLEY July 1, 2020 2:59 am Reply
  • Brilliant and simply explained! Just one quick question: should one include taxes and depreciation in the outflows?

    Juan Gut July 1, 2020 2:59 am Reply
  • How did you calculate "Helper cell for functions- Cash Flow"

    khaled sakib July 1, 2020 2:59 am Reply
  • npv= PVinflows – PV outflows, why u didn't do that???

    kostantinos tsopanikos July 1, 2020 2:59 am Reply
  • Can you give me a solution to this question

    dropped parcel company is considering purchasing new equipment to replace existing equipment that has book value of zero and market value of 15000 new equioment costs 90000 and is expected to provide production savings and increased profits of 20000 per year for the next 10 year new equipment has expected useful life of 10 years after which its estimated salvage value would be 10000 straight line depreciation effective tax rate 34% cost of capital 12% machinary replacement problem should droppitt replace current equipment?
    calculate NPV
    profitabiity index
    IRR

    mohammad ahmad July 1, 2020 2:59 am Reply
  • What is cost of capital and how it is calculated ?

    Shady Atef July 1, 2020 2:59 am Reply
  • God bless you sir

    jack capetola July 1, 2020 2:59 am Reply
  • Hi how did you do the break even anaylais?

    Carlos Espedido July 1, 2020 2:59 am Reply
  • simplest model that i can adapt from. we are inherited quite a few in house prepared deal sheets that tweaking. this helps a lot.

    doug marcus July 1, 2020 2:59 am Reply
  • Really good video, thanks.

    Paul Wilson July 1, 2020 2:59 am Reply
  • So ROI= NPV/cumulative cash flows? I havent been able to find any other website that says that

    Genki Dama July 1, 2020 2:59 am Reply
  • Wow, I have a final tomorrow morning and these two things were killing me…hours online with(out) my textbook…but you made it so clear. Thanks!

    Frank Macbride July 1, 2020 2:59 am Reply
  • Great, but:
    1. Why ignore the cash flows after 5 years?
    Perhaps after 20 years the present value of the net cash flow will be insignificant, and/or perhaps there are too many unpredictable variables over 20 years so we ignore the effects after some number of years. Is that right?
    2. After 3 years, the cumulative cash inflow exceeds the cumulative cash outflow, so you have money you could invest somewhere, supposedly at 12% [interest] / ROI. Do the calculations in this video inherently include the return on that [extra invested money], or should there be another line showing that in year 4 the roughly $20,000 cumulative net gain earned $2400 and in year 5 that $22,400 + year 4's net gain of roughly $137,000 (total $159,400) earned roughly $19,000?

    Jonathon Neville July 1, 2020 2:59 am Reply
  • Awesome template for beginners. Easy to understand and sufficient contents

    Amin Nazarahari July 1, 2020 2:59 am Reply
  • This tutorial explained a lot of my questions. Thank you so much Sir

    Nguyen Duc July 1, 2020 2:59 am Reply
  • wonderful

    Saniterra International July 1, 2020 2:59 am Reply
  • And the cumulative can you explain what these numbers represents? Should the outflow cumulative be in negative?

    G G July 1, 2020 2:59 am Reply
  • So can I get this right…the PV of Cash Outflow say for year 1 is $276000 from the $425k investment? And same philosophy with the inflow?

    G G July 1, 2020 2:59 am Reply
  • thanks Matt, the tutorial is great!

    MsAudron July 1, 2020 2:59 am Reply

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