KAVITHA P

20MBA1031

NPV & IRR MODEL

WORKSHEET CREATION:

 Open Excel and create worksheets for Company Profile, Beta and CAGR, WACC, Cash
Flow and NPV & IRR.

COMPANY PROFILE:

 The details of the company, such as the name, core activity can be entered in the
Company Profile sheet.

BETA AND CAGR CALCULATION:

 In the Beta & CAGR sheet, create columns as shown below.

 Under Stock Return, leave the first row, and enter the return formula as shown below.

 Drag the formula below.

 Repeat the previous step for Market Return.

 Create Table for Beta and CAGR computation.

 For Beta, use the if and Slope function to compute Beta.

 Compute CAGR using the formula below.

 Input the Stock Price, Market price (Index), No. of years, Market price at the beginning
and end to find Beta and CAGR.

COST OF EQUITY:

 Go to WACC sheet and create a table for Cost of equity as shown below.

 Use Subtraction function (Rm – Rf) to get market risk premium.

 Cost of equity (Ke) can be calculated by using the formula shown below.

 Input Beta, Market Rate of return (link Beta and CAGR values from previous sheet) and
Risk-free rate value (Government Security Yield or Bank fixed deposit rate), to calculate
cost of equity.

COST OF DEBT:

 In the same sheet create table as shown below.

 Cost of Debt can be computed by dividing interest expense by total debt.

 Input Total Debt and Interest Expense from the financial statements, to find the cost of
debt.

WACC:

 In the same sheet, create a table for computing WACC.

 Link Ke and Kd from previous tables.

 Insert Net debt and Enterprise value formula.

 Enter the formula for weightage of equity and weightage of debt and WACC.
 Input market capitalization, long term debt cash equivalents value and tax rate (from
financial statements) to find WACC.

CASH FLOW:

 Navigate to the Cash Flow sheet, and create tables as shown below

 For tax amount, multiply EBIT*Tax rate (from WACC sheet) and drag the formula.

 Subtract Tax from EBIT to get NOPAT and drag the formula.
 For free cash flow, add NOPAT, D&A, change in working capital (positive) and subtract
capex and change in working capital (negative) and drag the formula.

 Enter formula for Discount Period, Discount Factor and PV of Free Cash Flows and drag
it.

 Input the Year, estimated revenue, EBITDA, EBIT, Capital Expenditures, change in
working capital and Depreciation & Amortization to find the Free Cash flow and PV of
free cash flows.
NPV & IRR:

 In the NPV & IRR sheet, create table as shown below

 Link the data of Year, Cash flow and PV of Cash Flow from Cash Flow sheet and drag
the formula.

 Using SUM function, calculate the Net Present Values (NPV) of Cash Flows.

 Using IRR function, calculate the Internal Rate of Return (IRR).

 Use the IF function for investment decision, based on NPV & IRR values).
i.e., Accept if NPV is positive & Reject if NPV is negative
 Accept if IRR >WACC & Reject if IRR < WACC.

• From the values of Cash Flow and PV of Cash Flow, the NPV, IRR, and accept/reject
decisions are computed.

Thus, the NPV & IRR model is developed in Microsoft Excel.