Why You Need to know the Time Value of Money Formula (Excel NPV)
27 February 2020 Unleash your inner Financial Pro
The first 500 people who click the link will get 2 free months of Skillshare Premium: https://skl.sh/xelplus7
Get Access to My Course "Fundamentals of Financial Analysis" HERE: https://www.xelplus.com/course/learn-financial-analysis/
Time Value of Money is an important concept for making good investment decisions. It's based on the principle that the timing of payments is important. You'll need this at work if you're a project manager, proposing a new idea to your boss that costs money. You'll also need this for evaluating different options or choices of investments. We can calculate this "time value of money" easily in Excel. In fact in this video, I'll show you an Excel template you can use to calculate the time value of money for any investment decisions.
Question: If a customer asks you if instead of paying $10,000 in cash now he could pay $10,800 over 4 years. Is that a good deal for you?
The answer depends on several factors:
1. Opportunity Costs - Money has an earning capacity. So, instead of waiting for the money, you could invest it and hopefully make more out of it. By getting the money later, you lose the opportunity to make an additional income.
2. Inflation - Prices increase over time. So, the same item will probably cost more in a couple of years.
3. Risk - Payments in the future always carry a certain risk. Will you really get the money then?
The combination of these factors defines the time value of money and is expressed as a discount rate. For instance a discount rate of 5% means that in each successive year the same amount of money is going to be worth 5% less than in the previous year.
You'll learn how to calculate Present Value (PV) manually and then we'll use the Excel NPV formula to calculate the Net Present Value in one go. Input values is the discount rate and the future cash flows.
In order to compare alternatives with different timing of payments we need to calculate their present value. In other words we need to discount future payments.
Companies often use their Weighted Average Cost of Capital (WACC) which is their average cost to get equity and debt. By applying their WACC as discount rate, any project that results in a NPV greater than zero is worth doing.
Key Takeaways:
- The further in the future the payments are, the lower their present value will be
- Think of the discount rate as a hurdle. The higher the hurdle, the more difficult it will be to get a high present value
⯆ DOWNLOAD the workbook here: https://www.xelplus.com/time-value-of-money-excel-npv
Advanced Excel Formulas Playlist: https://www.youtube.com/playlist?list=PLmHVyfmcRKyxvxehq3fiGjKDsEyy6d4Tz
Finance & Accounting playlist: https://www.youtube.com/playlist?list=PLmHVyfmcRKywV8Bk6euT02xxtv8YVDkZs
★ My Online Excel Courses ► https://www.xelplus.com/courses/
✉ Not sure which of my Excel courses fits best for you? Take the quiz: https://www.xelplus.com/course-quiz/
EXCEL RESOURCES I Recommend: https://www.xelplus.com/resources/
Get Office 365: https://microsoft.msafflnk.net/15OEg
Microsoft Surface: https://microsoft.msafflnk.net/c/1327040/451518/7593
GEAR
Camera: https://amzn.to/2FLiFho
Screen recorder: http://techsmith.pxf.io/c/1252781/347799/5161
Microphone: https://amzn.to/2DVKstA
Lights: http://amzn.to/2eJKg1U
More resources on my Amazon page: https://www.amazon.com/shop/leilagharani
Let’s connect on social:
Instagram: https://www.instagram.com/lgharani
Twitter: https://twitter.com/leilagharani
LinkedIn: https://at.linkedin.com/in/leilagharani
Note: This description contains affiliate links, which means at no additional cost to you, we will receive a small commission if you make a purchase using the links. This helps support the channel and allows us to continue to make videos like this. Thank you for your support!
#Finance #MsExcel #Excel #LeilaGharani
-
The Squad
2 hours agoArsenal's Huge Summer🚨Olise to Man Utd DEAL✅ Osimhen to Arsenal or Chelsea☑️ UCL Final Preview
42 -
8:26
MichaelBisping
14 hours agoBISPING CHOKES OUT STEVE-O! | JACKASS STAR PUT TO SLEEP BY UFC CHAMP! *FULL VIDEO*
1.48K1 -
20:00
Clownfish TV
13 hours agoGoogle Hurt ITSELF in Its Confusion!
3.32K12 -
24:20
Brewzle
19 hours agoWe Went Unicorn Bourbon Hunting In Louisville, KY
4.42K3 -
35:39
Degenerate Jay
17 hours agoGoldenEye 007 Saved James Bond - Movie Review
4.64K1 -
14:54
Mr Reagan
17 hours agoWE ARE ALL MAGA NOW
5.44K22 -
15:35
Space Ice
16 hours ago'The Beekeeper' Exposes The Dark, Gritty, & Violent World Of Apiculture - Best Movie Ever
4.13K14 -
3:29:53
SonnyFaz
20 hours agoEric Kelly Trains Sonny FULL STREAM
5.38K6 -
9:32
China Uncensored
11 hours agoBad Things Are Happening In Taiwan...
5.39K6 -
38:24
Tucker Carlson
8 hours agoTucker Carlson and Donald Trump Jr. Respond to the Trump Verdict
65.9K376