Using Templates | Description | Variables | Calculations | Examples
Description
This template is for Cash Flow calculations. The Cash Flow template analyzes financial investments involving outflows and inflows of cash which occur on a regular basis but do not necessarily occur in similar amounts.
The Cash Flow template understands positive numbers to be inflows of cash (cash received) and negative numbers to be outflows (cash paid). Note that, although the interval between cash flows must be equal, the amounts of those cash flows do not have to be the same. Cash flows generally involve some initial outflow of cash followed by subsequent inflows over a number of periods. For instance, an initial outflow (designated by location 0) could be followed by various amounts paid back over five periods, each period being one year apart. Cash flows do not have to be initial outflows followed by inflows, either. Cash flows could be inflows preceded by outflows, or an initial inflow or outflow followed by some mixture of cash flows as well. See the Understanding Cash Flows section for a pictoral explanation of inflows and outflows.
Variables
- Cash Flows: Data set of cash flow amounts and occurrences. The 0th cash flow is the initial cash flow.
- Intrst/Yr%: Required to perform some cash flow computations, the interest per year is entered as a percentage. For instance, 8.25% would be entered as "8.25".
- Periods/Yr: Periods per year automatically adjusts the interest rate. When the interest rate is entered as a yearly rate, entering a value for periods per year will automatically determine the periodic interest rate. When calculating an interest rate (with IRR or MIRR), the reported interest rate will be on a yearly basis (the number of periods per year entered times the rate).
Calculations
- NPV: The net present value (NPV) method computes the amount gained or lost on a given investment in today's dollars. This uses a market rate of return (interest per year) to discount cash flows back to the present. Assuming an initial cash outflow, a positive NPV means the investor's assets would increase and the investment should be attractive. A negative NPV means that the investor's assets would decrease and the investment is not attractive. If NPV is zero, then the investor would probably be neutral to the investment. If the initial cash flow is an inflow, the reverse would be true.
- IRR%: The internal rate of return (IRR%) computes the rate at which the investment pays for itself. This can be compared against a desired rate of return. If the IRR is greater than a desired rate, the investment may be attractive. The internal rate of return method does not take interest per year or periods per year into consideration when calculating. Click here for additional IRR information.
- NFV: The net future value (NFV) computes the future value of the net present value.
- MIRR%: The modified internal rate of return (MIRR%) is an alternative for IRR when there is more than one sign change. When IRR has multiple sign changes, IRR can have more than one answer. MIRR eliminates sign changes by using reinvestment and borrowing interest rates instead (the Cash Flow template assumes these rates are the same).
- NUS: The net uniform series (NUS) performs computations by taking the net present value of the cash flows as if they are even and regular.
- Payback: The payback method tells at which period an initial investment will be paid back. If there is no payback, the reported answer is 0. The payback method does not take interest per year or periods per year into consideration when calculating.
- Pft Index: The profitability index, also known as the benefit/cost ratio, shows the relative profitability of any cash flow problem, dividing the present value of the inflows by the present value of the outflows.
- Total: The total is the sum of the cash flows.
Examples
Equipment Purchase
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