Tuesday, June 19, 2007
The NPV Function Doesn’t Calculate Net Present Value
One of the things that has always driven me nuts (because I have to repeatedly explain it in class) is that the NPV function in spreadsheets doesn’t really calculate NPV. Instead, despite the word “net,” the NPV function is really just a present value of uneven cash flow function. It has always been this way, so I’ve learned to live with it. I suspect that this goes all the way back to Visicalc (which you can download and run in a DOS window).
Net present value is defined as the present value of the expected future cash flows less the initial cost of the investment. “Net” always means
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Sunday, June 17, 2007
Video: Creating Step Function Charts in Excel
A couple of months ago, I created my first screencast video using Camtasia Studio from TechSmith. This is a great tool, but I need to work a bit on my video creation skills. Today, I posted the video on YouTube, and I hope that people will find it useful. The video shows how to create a step function chart in Excel.
In this case, I used the Fed Funds Target rate as my data source, but there are many other data series that could be used. Any data that is usually constant, but occasionally changes to a new level is a candidate for this type of chart. Watch the video and let me know
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Monday, June 11, 2007
On Arrays and Accumulated Depreciation
What could be easier, or more common, than calculating accumulated depreciation? Generally, in your spreadsheets you probably have each years’ depreciation expense listed in its own cell and all you do is add them up. Nothing wrong with that, but there is another way.
I like to read the forums over at AnandTech and help out whenever I can. Not long ago, a user asked about calculating accumulated depreciation using the DDB (double-declining balance) function. He needed to calculate the accumulated depreciation to date for an asset so that the book value could be calculated. My solution was
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