1. Tour of XNPV & XIRR
So we're back in the Excel file, and we're on the fourth tab
here, the one label as YEARFRAC, stands for Year Fraction. What we wanna
do here is deal with uneven spacing, so we have the valuation date,
and then we have all the cash flow dates across here,
and we wanna calculate here, we're asking you to calculate the discounting
years. So what we're looking for there is, what is the distance in
years between this date and that date, looks like they're about three months
apart, which is a quarter of a year. So we would be looking
for you here to have a figure of 0.25, for example.
So, if we have one quarter of a year distance here,
well, then, how far is this cash flow from the valuation date?
Well, it would be 1.25 years, for example. And all the way across
here. So, we want you to get the years in there,
and then in here, we want you to manually discount the cash flows
using those years which are above. Once you have the discounted cash flow
figures across here, you can add them up here to get the NPV. So
this will get you familiar with dealing with uneven cash flows or uneven
timing here using manual discounting methods. Next up, we want you to go
ahead to the next tab, which is titled XNPV, XIRR, and we want
you to use those functions, XNPV here, XIRR there, and the same down
below. Here, we've got one little gray solve there which you might need
to fill in as well, just to get everything working. Good luck with
these two tabs, YEARFRAC and XNPV, XIRR, and we'll see you soon.
2. Let's practice!