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

Project Y (1,200,000) 420,000 480,000 320,000 280,000
Project Z (1,800,000) 450,000 540,000 400,000 710,000
k 12.60%
Net Present Value (NPV)
NPV Solution Detail
Project Y Project Z
Time Cash Flows PV Cash Flows Cash Flows PV Cash Flows
1 420,000 373,001.78 450,000 399,644.76
2 480,000 378,585.92 540,000 425,909.16
3 320,000 224,147.97 400,000 280,184.96
4 280,000 174,182.48 710,000 441,677.00
5 380,000 209,938.28 900,000 497,222.25
PV Inflows 1,359,856.43 2,044,638.13
PV Outflows (1,200,000.00) (1,800,000.00)
NPV 159,856.43 244,638.13
( )
1
/ 1
t N
t
t
t
NPV CF k Initial Investment
=
=
= +

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.


Profitablity Index (PI)
CF/Time t=0 t=1 t=2 t=3 t=4
Project Y (1,200,000) 420,000 480,000 320,000 280,000
Project Z (1,800,000) 450,000 540,000 400,000 710,000
PI Solution Detail
Profitability Project Y Project Z
Index (PI)
PV Inflows 1,359,856.43 2,044,638.13
PV Outflows 1,200,000.00 1,800,000.00
PI 1.133 1.136
Internal Rate of Return (IRR)
CF/Time t=0 t=1 t=2 t=3 t=4
Project Y (1,200,000) 420,000 480,000 320,000 280,000
Project Z (1,800,000) 450,000 540,000 400,000 710,000
IRR Solution Detail
Project Y IRR : 18.23% Project Z IRR: 17.39%
Time Cash Flows PV Cash Flows Cash Flows PV Cash Flows
1 420,000 355,234.10 450,000 383,332.42
( )
1
/ 1 0
t N
t
t
t
IRR CF IRR Initial Investment
=
=
(
= + =
(

( )
1
/ 1 /
t N
t
t
t
PI CF k Initial Investment
=
=
(
= +
(

2 480,000 343,377.60 540,000 391,849.98

3 320,000 193,618.15 400,000 247,257.29
4 280,000 143,291.18 710,000 373,861.29
5 380,000 164,478.98 900,000 403,699.02
PV Inflows 1,200,000.00 1,800,000.00
PV Outflows (1,200,000.00) (1,800,000.00)
NPV 0.00 (0.00)
Modified Internal Rate of Return (MIRR)
CF/Time t=0 t=1 t=2 t=3 t=4
Project Y (1,200,000) 420,000 480,000 320,000 280,000
Project Z (1,800,000) 450,000 540,000 400,000 710,000
Terminal Value and MIRR Solution Detail
Project Y CF # Years FV
t = 1 420,000 4 675,154.01
t = 2 480,000 3 685,261.62
t = 3 320,000 2 405,720.32
t = 4 280,000 1 315,280.00
t = 5 380,000 0 380,000.00
t = 0 (1,200,000) Sum 2,461,415.95 (t = 5)
MIRR 15.45%
Project Z CF # Years FV
t = 1 450,000 4 723,379.30
t = 2 540,000 3 770,919.32
t = 3 400,000 2 507,150.40
t = 4 710,000 1 799,460.00
( ) ( )
1
1 / 1 0
t N
t N
t
t
MIRR CF k MIRR Initial Investment
=
=

(
= + + =
`
(

)

t = 5 900,000 0 900,000.00
t = 0 (1,800,000) Sum 3,700,909.02 (t = 5)
MIRR 15.51%
Additional Example Applications for NPV, PI, IRR and MIRR
t=5 CF/Time t=0
380,000 Project M (2,600,000)
900,000 Project N (3,400,000)
k 14.80%
Excel NPV Function Solutions Excel NPV Function Solutions
k 12.60% k
Project Y Project Z
NPV NPV
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
The date specific functions are presented in the XNPV and XIRR Example worksheet.
: 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
Recommendations:

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

CF/Time t=0
Project M (2,600,000)
t=5
Project N (3,400,000)
380,000
k 14.80%
900,000
Excel PI Function Solutions Excel PI Function Solutions
k 12.60% k
Project Y Project Z
PI PI
CF/Time t=0
t=5 Project M (2,600,000)
380,000 Project N (3,400,000)
900,000 k 14.80%
Excel IRR Function Solutions Excel IRR Function Solutions
k 12.60% k
Project Y Project Z
IRR IRR
Recommendations:

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

CF/Time t=0
Project M (2,600,000)
t=5 Project N (3,400,000)
380,000 k 14.80%
900,000
Excel MIRR Function Solution Excel MIRR Function Solution
Project Y k
k 12.60%
MIRR MIRR
Excel MIRR Function Solution
Project Z
k 12.60%
MIRR
Recommendations:

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


( ) ( )
1
1 / 1 0
t N
t N
t
t
MIRR CF k MIRR Initial Investment
=
=

(
= + + =
`
(

)

Recommendations:

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


Additional Example Applications for NPV, PI, IRR and MIRR
t=1 t=2 t=3 t=4 t=5 t = 6
585,000 744,000 645,000 880,000 755,000 1,065,000
995,000 745,000 1,220,000 1,830,000
Excel NPV Function Solutions
14.80%
Project M Project N
t=1 t=2 t=3 t=4 t=5 t = 6
585,000 744,000 645,000 880,000 755,000 1,065,000
995,000 745,000 1,220,000 1,830,000
Excel PI Function Solutions
14.80%
Project M Project N
t=1 t=2 t=3 t=4 t=5 t = 6
585,000 744,000 645,000 880,000 755,000 1,065,000
995,000 745,000 1,220,000 1,830,000
Excel IRR Function Solutions
14.80%
Project M Project N
t=1 t=2 t=3 t=4 t=5 t = 6
585,000 744,000 645,000 880,000 755,000 1,065,000
995,000 745,000 1,220,000 1,830,000
Excel MIRR Function Solution
14.80%
Project M Project N
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
Project Y (1,200,000) 420,000 480,000 320,000 280,000
Project Z (1,800,000) 450,000 540,000 400,000 710,000
k 12.60%
Net Present Value (NPV)
NPV Solution Detail
Project Y Project Z
Time Cash Flows PV Cash Flows Cash Flows PV Cash Flows
1 420,000 373,001.78 450,000 399,644.76
2 480,000 378,585.92 540,000 425,909.16
3 320,000 224,147.97 400,000 280,184.96
4 280,000 174,182.48 710,000 441,677.00
5 380,000 209,938.28 900,000 497,222.25
PV Inflows 1,359,856.43 2,044,638.13
PV Outflows (1,200,000.00) (1,800,000.00)
NPV 159,856.43 244,638.13
( )
1
/ 1
t N
t
t
t
NPV CF k Initial Investment
=
=
= +

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.


Profitablity Index (PI)
CF/Time t=0 t=1 t=2 t=3 t=4
Project Y (1,200,000) 420,000 480,000 320,000 280,000
Project Z (1,800,000) 450,000 540,000 400,000 710,000
PI Solution Detail
Profitability Project Y Project Z
Index (PI)
PV Inflows 1,359,856.43 2,044,638.13
PV Outflows 1,200,000.00 1,800,000.00
PI 1.133 1.136
Internal Rate of Return (IRR)
CF/Time t=0 t=1 t=2 t=3 t=4
Project Y (1,200,000) 420,000 480,000 320,000 280,000
Project Z (1,800,000) 450,000 540,000 400,000 710,000
IRR Solution Detail
Project Y IRR : 18.23% Project Z IRR: 17.39%
Time Cash Flows PV Cash Flows Cash Flows PV Cash Flows
1 420,000 355,234.10 450,000 383,332.42
( )
1
/ 1 0
t N
t
t
t
IRR CF IRR Initial Investment
=
=
(
= + =
(

( )
1
/ 1 /
t N
t
t
t
PI CF k Initial Investment
=
=
(
= +
(

2 480,000 343,377.60 540,000 391,849.98

3 320,000 193,618.15 400,000 247,257.29
4 280,000 143,291.18 710,000 373,861.29
5 380,000 164,478.98 900,000 403,699.02
PV Inflows 1,200,000.00 1,800,000.00
PV Outflows (1,200,000.00) (1,800,000.00)
NPV 0.00 (0.00)
Modified Internal Rate of Return (MIRR)
CF/Time t=0 t=1 t=2 t=3 t=4
Project Y (1,200,000) 420,000 480,000 320,000 280,000
Project Z (1,800,000) 450,000 540,000 400,000 710,000
Terminal Value and MIRR Solution Detail
Project Y CF # Years FV
t = 1 420,000 4 675,154.01
t = 2 480,000 3 685,261.62
t = 3 320,000 2 405,720.32
t = 4 280,000 1 315,280.00
t = 5 380,000 0 380,000.00
t = 0 (1,200,000) Sum 2,461,415.95 (t = 5)
MIRR 15.45%
Project Z CF # Years FV
t = 1 450,000 4 723,379.30
t = 2 540,000 3 770,919.32
t = 3 400,000 2 507,150.40
t = 4 710,000 1 799,460.00
( ) ( )
1
1 / 1 0
t N
t N
t
t
MIRR CF k MIRR Initial Investment
=
=

(
= + + =
`
(

)

t = 5 900,000 0 900,000.00
t = 0 (1,800,000) Sum 3,700,909.02 (t = 5)
MIRR 15.51%
Additional Example Applications for NPV, PI, IRR and MIRR
t=5 CF/Time t=0
380,000 Project M (2,600,000)
900,000 Project N (3,400,000)
k 14.80%
Excel NPV Function Solutions Excel NPV Function Solutions
k 12.60% k
Project Y Project Z
NPV 159,856.43 244,638.13 NPV
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
The date specific functions are presented in the XNPV and XIRR Example worksheet.
: 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
Recommendations:

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

CF/Time t=0
Project M (2,600,000)
t=5
Project N (3,400,000)
380,000
k 14.80%
900,000
Excel PI Function Solutions Excel PI Function Solutions
k 12.60% k
Project Y Project Z
PI 1.133 1.136 PI
CF/Time t=0
t=5 Project M (2,600,000)
380,000 Project N (3,400,000)
900,000 k 14.80%
Excel IRR Function Solutions Excel IRR Function Solutions
k 12.60% k
Project Y Project Z
IRR 18.23% 17.39% IRR
Recommendations:

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

CF/Time t=0
Project M (2,600,000)
t=5 Project N (3,400,000)
380,000 k 14.80%
900,000
Excel MIRR Function Solution Excel MIRR Function Solution
Project Y k
k 12.60%
MIRR 15.45% MIRR
Excel MIRR Function Solution
Project Z
k 12.60%
MIRR 15.51%
Recommendations:

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


( ) ( )
1
1 / 1 0
t N
t N
t
t
MIRR CF k MIRR Initial Investment
=
=

(
= + + =
`
(

)

Recommendations:

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


Additional Example Applications for NPV, PI, IRR and MIRR
t=1 t=2 t=3 t=4 t=5 t = 6
585,000 744,000 645,000 880,000 755,000 1,065,000
995,000 745,000 1,220,000 1,830,000
Excel NPV Function Solutions
14.80%
Project M Project N
251,003.63 (107,995.21)
t=1 t=2 t=3 t=4 t=5 t = 6
585,000 744,000 645,000 880,000 755,000 1,065,000
995,000 745,000 1,220,000 1,830,000
Excel PI Function Solutions
14.80%
Project M Project N
1.097 0.97
t=1 t=2 t=3 t=4 t=5 t = 6
585,000 744,000 645,000 880,000 755,000 1,065,000
995,000 745,000 1,220,000 1,830,000
Excel IRR Function Solutions
14.80%
Project M Project N
18.01% 13.40%
t=1 t=2 t=3 t=4 t=5 t = 6
585,000 744,000 645,000 880,000 755,000 1,065,000
995,000 745,000 1,220,000 1,830,000
Excel MIRR Function Solution
14.80%
Project M Project N
16.58% 13.88%
EXCEL Spreadsheet Illustration of Capital Investment Examples
General NPV and IRR Functions in Excel
CF/Time t=0 t=1 t=2 t=3 t=4 t=5
Project Y (1,200,000) 420,000 480,000 320,000 280,000 380,000
Project Z (1,800,000) 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 (1,200,000) 420,000 480,000 320,000 280,000 380,000
Project Z (1,800,000) 450,000 540,000 400,000 710,000 900,000
k 12.60%
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.


EXCEL Spreadsheet Illustration of Capital Investment Examples
XNPV XIRR
Project Y
Project Z
EXCEL Spreadsheet Illustration of Capital Investment Examples
CF/Time t=0 t=1 t=2
Project M (2,600,000) 585,000 744,000
Project N (3,400,000) 995,000 745,000
k 14.80%
NPV IRR
Project Y 251,004 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 (2,600,000) 585,000 744,000
Project N (3,400,000) 995,000 745,000
k 14.80%
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
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
EXCEL Spreadsheet Illustration of Capital Investment Examples
XNPV XIRR
Project M
Project N
EXCEL Spreadsheet Illustration of Capital Investment Examples
t=3 t=4 t=5 t=6
645,000 880,000 755,000 1,065,000
1,220,000 1,830,000
15-Feb-2006 15-Feb-2007 15-Feb-2008 15-Feb-2009
645,000 880,000 755,000 1,065,000
1,220,000 1,830,000
General NPV and IRR Functions in Excel
CF/Time t=0 t=1 t=2 t=3 t=4 t=5
Project Y (1,200,000) 420,000 480,000 320,000 280,000 380,000
Project Z (1,800,000) 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 (1,200,000) 420,000 480,000 320,000 280,000 380,000
Project Z (1,800,000) 450,000 540,000 400,000 710,000 900,000
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.


XNPV XIRR
Project Y 159,659 18.22%
Project Z 244,242 17.38%
CF/Time t=0 t=1 t=2
Project M (2,600,000) 585,000 744,000
Project N (3,400,000) 995,000 745,000
k 14.80%
NPV IRR
Project Y 251,004 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 (2,600,000) 585,000 744,000
Project N (3,400,000) 995,000 745,000
k 14.80%
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
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
XNPV XIRR
Project M 249,943 18.00%
Project N (108,912) 13.39%
t=3 t=4 t=5 t=6
645,000 880,000 755,000 1,065,000
1,220,000 1,830,000
15-Feb-2006 15-Feb-2007 15-Feb-2008 15-Feb-2009
645,000 880,000 755,000 1,065,000
1,220,000 1,830,000
Cost of
Year Cash Flow Capital NPV
0 (145.00) 0% ($10.00)
1 100.00 3% ($1.88)
2 100.00 3.91% ($0.00)
3 100.00 6% $3.49
4 100.00 9% $6.74
5 (265.00) 12% $8.37
15% $8.75
18% $8.17
IRR # 1 3.91% 21% $6.88
IRR # 2 30.28% 24% $5.03
27% $2.79
30% $0.25
30.28% $0.00
33% ($2.49)
36% ($5.38)
39% ($8.35)
-15
-10
-5
0
5
10
0 0.1
N
e
t

P
r
e
s
e
n
t

V
a
l
u
e

Cost of Capital
Two IRRs
0.2 0.3 0.4
Cost of Capital
Two IRRs
CF/Time t=0 t=1 t=2 t=3 t=4 t=5
Project M (2,600,000) 585,000 744,000 645,000 880,000 755,000
Project N (3,400,000) 995,000 745,000 1,220,000 1,830,000
k 14.80%
NPV PI IRR MIRR
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 15-Jul-06
Project Y (2,600,000) 585,000 744,000 645,000 880,000 755,000
Project Z (3,400,000) 995,000 745,000 1,220,000 1,830,000
XNPV XIRR
Project Y 250,332 18.01%
Project Z (108,698) 13.39%
t = 6
1,065,000
15-Jul-07
1,065,000