A Project Report

On
Financial Modeling using Spreadsheets
Submitted in partial fulfillment for the requirement of the degree of B. Com (Honors)

Under the Supervision of

Dr. Shikha Gupta

By-Shubham
Singh Rawat
Semester:-VI
(Enrollment No.04119288821)

Lingaya’sLalita Devi Institute of Management & Sciences

(NAAC Accredited “A” Grade Institute & Approved u/s 2(f) of UGC Act 1956)
Mandi Road, Mandi, New Delhi-110047
 DECLARATION

This is to certify that I have completed the Project titled “Financial Modeling using Spreadsheet” under the
guidance of “Dr. Shikha Gupta” in partial fulfillment of the requirement for the award of Degree of Bachelor
of B. Com (H) at Lingaya’s Lalita Devi Institute of Management and Sciences, Delhi. This is an original piece
of work & I have not submitted it earlier elsewhere.

Date: Signature:

Name:Shubham Singh

Rawat

Enrollment No.:

04119288821
 ACKNOWLEDGEMENT

It is my pleasure to be indebted to various people who directly or indirectly contributed in the

development of this work and who influenced my thinking behavior and acts during the course of study.

I also extended my sincere indebtedness to Dr. Shikha Gupta” Assoc. Professor, LLDIMS, New Delhi
taught us this subject and provided her valuable suggestion and precious time in accomplishing my
project. I also take the opportunity to express my sincere gratitude to each and every person, who
directly or indirectly helped me throughout the project and without any one of them this project would
not have been possible.

The immense learning from this project would be indelible forever.

Shubham Singh Rawat

Enrollment No.: 04119288821
 TABLE OF CONTENT

S.N0 TOPIC PAGE NO.

1 Declaration I
2 Acknowledgement II
3 Table of content III
4 Introduction of Microsoft Excel 1
5 Microsoft Excel Window Components 2
6 Basic Excel Formulas 4
 Sum
 Average
 Count
 If
 Counta
 Trim
 Max & Min
7 V Lookup & H Lookup 10
8 Pivot Table 16
9 Logical Functions 19
 Not
 Or
 And
 If
10 Charts 22
11 Advanced function 27
 Shopping cart
 Drop down menu
 Data validation
 Conditional formatting
 Scenario manager
 Goal seek
 Data filtering
12 46
13 51
14 CFI Certificate 53
 INTRODUCTION

MICROSOFT EXCEL
Microsoft Excel is a spreadsheet, developed by Microsoft for Windows, macOS, Android, and iOS. Microsoft
Excel is a spreadsheet program that is used to record and analyze numerical data. Think of a spreadsheet as a
collection of columns and rows that form a table. Alphabetical letters are usually assigned to columns and
numbers are usually assigned to rows. The point where a column and a row meet is called a cell.
The best part about Excel is, it can apply to many business tasks, including statistics, finance, data management,
forecasting, analysis, inventory, billing, and business intelligence.

Following are the few things which it can do for you:

• Number Crunching
• Charts and Graphs
• Store and Import Data
• Manipulating Text
• Templates/Dashboards
• Automation of Tasks
• And Much More...

Three most important components of Excel is which you need to understand first:

1. Cell: A cell is a smallest but most powerful part of a spreadsheet. You can enter your data into a cell either
by typing or by copy-paste. Data can be a text, a number, or a date. You can also customize it by changing
its size, font color, background color, borders, etc. Every cell is identified by its cell address, cell address
contains its column number and row number (If a cell is on 11th row and on column AB, then its address
will be AB11).
2. Worksheet: A worksheet is made up of individual cells which can contain a value, a formula, or text. It
also has an invisible draw layer, which holds charts, images, and diagrams. Each worksheet in a workbook
is accessible by clicking the tab at the bottom of the workbook window.
3. Workbook: A workbook is a separate file just like every other application has. Each workbook contains
one or more worksheets. You can also say that a workbook is a collection of multiple worksheets or can be
a single worksheet. You can add or delete worksheets, hide them within the workbook without deleting
them, and change the order of your worksheets within the workbook.
 Microsoft Excel Window Components

1. Active Cell: A cell which is currently selected. It will be highlighted by a rectangular box and its address
will be shown in the address bar. You can activate a cell by clicking on it or by using your arrow buttons.
To edit a cell, you double-click on it or use F2 to as well.
2. Columns: A column is a vertical set of cells. A single worksheet contains 16384 total columns. Every
column has its own alphabet for identity, from A to XFD. You can select a column clicking on its header.
3. Rows: A row is a horizontal set of cells. A single worksheet contains 1048576 total rows. Every row has its
own number for identity, starting from 1 to 1048576. You can select a row clicking on the row number
marked on the left side of the window.
4. Fill Handle: It’s a small dot present on the lower right corner of the active cell. It helps you to fill numeric
values, text series, insert ranges, insert serial numbers, etc.
5. Address Bar: It shows the address of the active cell. If you have selected more than one cell, then it will
show the address of the first cell in the range.
6. Formula Bar: The formula bar is an input bar, below the ribbon. It shows the content of the active cell and
you can also use it to enter a formula in a cell.
7. Title Bar: The title bar will show the name of your workbook, followed by the application name
(“Microsoft Excel”).
8. File Menu: The file menu is a simple menu like all other applications. It contains options like (Save, Save
As, Open, New, Print, Excel Options, Share, etc).
9. Quick Access Toolbar: A toolbar to quickly access the options which you frequently use. You can add
your favorite options by adding new options to quick access toolbar.
10. Ribbon Tab: Starting from the Microsoft Excel 2007, all the options menus are replaced with the
ribbons. Ribbon tabs are the bunch of specific option group which further contains the option.
11. Worksheet Tab: This tab shows all the worksheets which are present in the workbook. By default you
will see, three worksheets in your new workbook with the name of Sheet1, Sheet2, Sheet3 respectively.
12. Status Bar: It is a thin bar at the bottom of the Excel window. It will give you an instant help once you
start working in Excel.
Microsoft Excel Basic Functions
1. SUM: It returns the sum of numeric values in a cell. You can refer to the cells where you have values or
simply insert the values into the function.
2. COUNT: It returns the count of numeric values in a cell. You can refer to the cells where you have values
or simply insert the values into the function.
3. AVERAGE: It returns the average of numeric values in a cell. You can refer to the cells where you have
values or simply insert the values into the function.
4. TIME: It returns a valid time serial number as per Excel's time format. You need to specify hours, minutes
and seconds.
5. DATE: It returns a valid date serial number as per Excel's time format. You need to specify day, month and
year.
6. LEFT: This function extracts specific characters from the a cell/string starting from the left (start). You
need to specify the text and number of characters to extract.
7. RIGHT: This function extracts specific characters from the a cell/string starting from the right (last). You
need to specify the text and number of characters to extract.
8. VLOOKUP: It looks up for a value in a column and can return that value or a value from the correspondent
columns using same row number.
9. IF: This function returns a value when the specific condition is TRUE and returns another values it
condition is FALSE.
10. NOW: It returns the current date and time in the cell where you insert it using your system's settings.

Basic Terms in Excel

There are two basic ways to perform calculations in Excel: Formulas and Functions.

1. Formulas
In Excel, a formula is an expression that operates on values in a range of cells or a cell. For example,
=A1+A2+A3, which finds the sum of the range of values from cell A1 to cell A3.

2. Functions
Functions are predefined formulas in Excel. They eliminate laborious manual entry of formulas while giving
them human-friendly names. For example:
=SUM(A1:A3). The function sums all the values from A1 to A3.

Seven Basic Excel Formulas

1. SUM
The SUM function is the first must-know formula in Excel. It usually aggregates values from a selection of
columns or rows from your selected range. =SUM(number1, [number2], …)

Example:

=SUM(B2:G2) – A simple selection that sums the values of a row.

=SUM(A2:A8) – A simple selection that sums the values of a column.

=SUM(A2:A7, A9, A12:A15) – A sophisticated collection that sums values from range A2 to A7, skips A8, adds
A9, jumps A10 and A11, then finally adds from A12 to A15.

=SUM(A2:A8)/20 – Shows you can also turn your function into a formula.
2. AVERAGE
The AVERAGE function should remind you of simple averages of data such as the average number of
shareholders in a given shareholding pool. =AVERAGE(number1, [number2], …)

Example:

=AVERAGE(B2:B11) – Shows a simple average, also similar to (SUM(B2:B11)/10)

3. Count.
The count Function counts all the cells in given range that only contains numeric values.
=COUNT(value1,value2,….)
Example:
COUNT(A:A) – Counts all values that are numerical in A column. However, you must adjust the range inside
the formula to count rows.
COUNT(A1:C1) – Now it can count rows.
4. COUNTA
Like the COUNT function, COUNTA counts all cells in a given rage. However, it counts all cells regardless of
type. That is, unlike COUNT that only counts numerics, it also counts dates, times, strings, logical values,
errors, empty string, or text.

=COUNTA(value1, [value2], …)
Example:

COUNTA(C2:C13) – Counts rows 2 to 13 in column C regardless of type. However, like COUNT, you
can’t use the same formula to count rows. You must make an adjustment to the selection inside the brackets –
for example, COUNTA(C2:H2) will count columns C to H .

5. IF
The IF function is often used when you want to sort your data according to a given logic. The best part of the IF
formula is that you can embed formulas and function in it.
=IF(logical_test, [value_if_true], [value_if_false])

Example:
=IF(C2<D3, ‘TRUE,’ ‘FALSE’) – Checks if the value at C3 is less than the value at D3. If the logic is true, let
the cell value be TRUE, else, FALSE
=IF(SUM(C1:C10) > SUM(D1:D10), SUM(C1:C10), SUM(D1:D10)) – An
example of a complex IF logic. First, it sums C1 to C10 and D1 to D10, then it compares the sum. If the sum of
C1 to C10 is greater than the sum of D1 to D10, then it makes the value of a cell equal to the sum of C1 to C10.
Otherwise, it makes it the SUM of C1 to C10.
6. Trim
The Trim function makes sure your functions do not return errors due to unruly spaces. It ensures that all
empty spaces are eliminated unlike other functions that can operate on a range of cells. Trim only operates on a
single cell, Therefore it come with the downside of adding duplicated data in your spreadsheet.
Example:

TRIM(A2) – Removes empty spaces in the value in cell A2.

7. MAX & MIN
The MAX and MIN functions help in finding the maximum number and the minimum number in a range of
values.
=MIN(number1, [number2], …)
Example:
=MIN(B2:C11) – Finds the minimum number between column B from B2 and column C from C2 to row 11 in
both columns B and C.
=MAX(number1, [number2], …)

Example:

=MAX(B2:C11) – Similarly, it finds the maximum number between column B from B2 and column C from
C2 to row 11 in both columns B and C.
 VLOOKUP Function
The VLOOKUP function in Excel is a powerful function used to lookup data in a table organized
vertically. It looks down the left column of a range to find a value.

Syntax: =VLOOKUP(lookup_value, table_array, col_index_num, [range_lookup] )

Consider the master employee dataset.

We will look for the Emp ID in the master dataset and fill the first name corresponding to the Emp ID.
To use the VLOOKUP function, follow the steps mentioned below.
Step 1. Click on the cell that you’d like the VLOOKUP formula to be calculated. In this case, the cell is C3.

Step 2. Click on the formula at the top of the screen, and in the lookup and reference, select
VLOOKUP.

Step 3. Select the VLOOKUP option. The argument window will appear.
Step 4. Click the OK button.

There is another way you can implement the VLOOKUP function. Use the formula bar and enter the required
fields there.

HLOOKUP Function

The HLOOKUP function looks up for a value in the first row of a given range and gives a value in
the same column from a row that you specified.

Syntax: =HLOOKUP( lookup_value, table_array, row_index_num, [range_lookup] )

 PIVOT TABLES

Pivot tables are among the most useful and powerful features in Excel. We use them in summarizing the
data stored in a table. They organize and rearrange statistics (or "pivot") to draw attention to the valuable
facts. You can take an extremely large data set and see the relevant information you need in a clean,
concise, manageable way.

Sample Data
The sample data that we are going to use contains 448 records with 8 fields of information on the sale of
products across different regions between 2013-2015.
This data is perfect to understand the pivot table.
Insert Pivot Tables

To insert a pivot table in your sheet, follow these steps:

• Click on any cell in a data set.

• On the Insert tab, in the Tables group, click PivotTable.

 A dialog box will appear. Excel will auto-select your dataset. It will also create a new worksheet for your
pivot table.

Click Ok. Then, it will create a pivot table worksheet.

Logical Functions
If Function
The IF function is the main logical function in Excel.

The IF function accepts 3 bits of information:

=IF(logical_test, [value_if_true], [value_if_false])
• logical_test: This is the condition for the function to check.
• value_if_true: The action to perform if the condition is met, or is true.
• value_if_false: The action to perform if the condition is not met, or is false.

IF Function Example 1: Text Values

In this example, we want to test if a cell is equal to a specific phrase. The IF function is not case-sensitive so
does not take upper and lower case letters into account.
The following formula is used in column C to display “No” if column B contains the text “Completed” and
“Yes” if it contains anything else.
=IF(B2="Completed","No","Yes")

IF Function Example 2: Numeric Values

The IF function is also great for comparing numeric values.
In the formula below we test if cell B2 contains a number greater than or equal to 75. If it does, then we display
the word “Pass,” and if not the word “Fail.”
=IF(B2>=75,"Pass","Fail")

IF Function Example 3: Date Values

In this example, we use the IF function to track a list of due dates. We want to display the word “Overdue” if
the date in column B is in the past. But if the date is in the future, calculate the number of days until the due
date.
The formula below is used in column C. We check if the due date in cell B2 is less than today’s date
=IF(B2<TODAY(),"Overdue",B2-TODAY())

The AND and OR

The AND and OR functions are used when you want to perform more than one comparison in your formula.
The IF function alone can only handle one condition, or comparison.
The AND function returns TRUE only if every condition is met, and otherwise returns FALSE. The OR
function returns TRUE if one or all of the conditions are met, and returns FALSE only if no conditions are
met.

AND Function example

The AND function is used below to test if the customer spends at least £3,000 and has been a customer for at
least three years.
=AND(B2>=3000,C2>=3)

You can see that it returns FALSE for Matt and Terry because although they both meet one of the criteria, they
need to meet both with the AND function.
OR Function Example
The OR function is used below to test if the customer spends at least £3,000 or has been a customer for at least
three years.
=OR(B2>=3000,C2>=3)

In this example, the formula returns TRUE for Matt and Terry. Only Julie and Gillian fail both conditions and
return the value of FALSE.

NOT Function
The NOT function reverses the value of its argument. So if the logical value is TRUE, then it returns FALSE.
And if the logical value is FALSE, it will return TRUE.
The structure of the NOT function is;
=NOT(logical)

NOT Function Example

In this example, imagine we have a head office in London and then many other regional sites. We want to
display the word “Yes” if the site is anything except London, and “No” if it is London.
The NOT function has been nested in the logical test of the IF function below to reverse the TRUE result.
=IF(NOT(B2="London"),"Yes","No")
s

BARS AND CHARTS

In Microsoft Excel, charts are used to make a graphical representation of any set of data. A chart
is a visual representation of data, in which the data is represented by symbols such as bars in a bar
chart or lines in a line chart. A vertical bar graph in Excel is a separate chart type, known as a
column bar chart. Along with pie charts, bar graphs are one of the most commonly used chart
types. They are simple to make and easy to understand.

Excel provides you different types of charts that suit your purpose. Based on the type of data, you
can create a chart. You can also change the chart type later.
Excel offers the following major chart types −

 Column Chart
 Line Chart
 Pie Chart
 Doughnut Chart
 Bar Chart
 Area Chart
 XY (Scatter) Chart
We can find the Charts group under the Insert tab on the Ribbon.
STEPS TO MAKE PIE CHART IN MS EXCEL

Step 1: Select the required data in which you have to insert pie
chart. Step 2: Go to the insert tab on the ribbon.

Step 3: Go to the charts options in the ribbon.

Step 4: Click the arrow to see the different types of pie chart available in your document.
Step 5: Select the desired pie chart.

STEPS TO MAKE CLUSTERED BAR CHART

Step 1: Select the required data in which we have to insert the bar chart.

Step 2: On the insert on the ribbon display options icon on the top right corner of your document.
Step 3: Select 2D bar chart.

Step 4: Click on the clustered bar.

STEPS TO MAKE CLUSTERED COLUMN

Step 1: Select the required data in which we have to insert the bar chart.

Step 2: On the insert on the ribbon display options icon on the top right corner of your document.
Step 3: Select 2D column.

Step 4: Click on the clustered Column.

STEPS TO MAKE STACKED BAR CHART

Step 1: Select the required data in which we have to insert the bar chart.
Step 2: On the insert on the ribbon display options icon on the top right corner of your document.
Step 3: Select 2D bar chart.
Step 4: Click on the stacked bar.

STEPS TO MAKE 100% STACKED BAR CHART

Step 1: Select the required data in which we have to insert the bar chart.

Step 2: On the insert on the ribbon display options icon on the top right corner of your document.
Step 3: Select 2D bar chart.

Step 4: Click on the 100% stacked bar.

STEPS TO MAKE STACKED COLUMN
Step 1: Select the required data in which we have to insert the bar chart.
Step 2: On the insert on the ribbon display options icon on the top right corner of your document.
Step 3: Select 2D column.
Step 4: Click on the stacked column.

STEPS TO MAKE 100% STACKED COLUMN

Step 1: Select the required data in which we have to insert the bar chart.
Step 2: On the insert on the ribbon display options icon on the top right corner of your document.
Step 3: Select 2D column.

Step 4: Click on the 100% stacked column.

ADVANCED FUNCTIONS

SHOPPING CART
Shopping Cart – Also sometimes called a basket, it's the listing of products your customers wants to
buy at checkout. As we have data on the field “Item” name, customers can now pick an item from the
drop down. Soon as they select an item, using Vlookup, the workbook identifies the corresponding
Item description and per item price from the “inventory”. This information is displayed on the
“Shopping Cart”. When the field “Quantity” is updated, the total price gets populated with correct
values.
1. Enter the data.

2. Multiply the two cells under QUANTITY and PRICE i.e. G3*H3 in the cell I3.
3. Now write the formula of Vlookup in the cell H4 under the Price.
 As now the Shopping Cart is ready to use .

DROP DOWN MENU

Drop-down list work more efficiently in worksheets by using drop-down lists in cells. Drop-
downs allow people to pick an item from a list that you create.
1. Select the cell in the worksheet where you want the drop-down list.
2. Go to the Data tab on the Ribbon, then Data Validation .
3. On the Settings tab, in the Allow box, click List .
4. Click in the Source box, then select your list range. We put ours on a sheet, in range C2:C5
Now the drop down menu has added.

Here is another example of creating drop down menu in which we are selecting the all the items
listed in the sheet.
1. Go to the Data> Data Validation
2. Select Data Validation then Data Validation Dialog box will appear.
3. Now go to the settings in the appeared dialog box and select OPTION- “LIST” in Allow.
4. Then select the cells (A2:A23) in the SOURCE option
5. Then Click OK.
6. Now the dialog box appeared as shown in this figure.

DATA VALIDATION

Data validation in Excel is a technique that restricts user input in a worksheet. It is often used to limit user entry.
Settings Tab
The settings tab is where you enter the validation criteria. There are eight options available to validate
for user input:
 Any Value - It removes any existing data validation.
  Whole Number - It allows only whole numbers. For example, you can specify that the user
must enter the number between 0 to 30.
 Decimal - The user must enter a number with decimal values.
 List - The user will have to create a drop-down list to choose from.
 Date - The user will have to enter the date format.
 Time - The user should enter a time.
 Text Length - It validates input based on the length of the data.
 Custom - It validates the user input using a custom formula.

Input Message Tab

You can set the input message to explain what data is allowed in a given cell. This tab is optional.

 Check the 'show input message when the cell is selected'.

 Enter a title.
 Enter an Input message.

How to Validate Data in Excel?

Step 1 - Select The Cell For Validation
Select the cell you want to validate. Go to the Data tab > Data tools, and click on the Data
Validation button.

A data validation dialogue box will appear having 3 tabs - Settings, Input Message, and Error
Alerts.

Step 2 - Specify Validation Criteria

On the settings tab, specify your validation criteria.
Step 3 - Under Allow, Select The Criteria
Under Allow, select an option from Whole Number, Decimal, List, Date, Time, Text Length, and
Custom.

Step 4 - Select Condition

Under Data, select a condition and set required values based on what you choose for Allow and
Data.
Step 5 - Input Message
You can enter the input message if you want. This step is
optional. Step 6 - Custom Error Message
You can also set your custom error message. This step is optional.
Step 7 - Click Ok
Now, if you try entering a value outside the specified range (10, 50), it will result in an error.

CONDITIONAL FORMATTING

Apply conditional formatting based on text in a cell :-

1. Select the cells you want to apply conditional formatting to. Click the first cell in the
range, and then drag to the last cell.

2. Click HOME > Conditional Formatting > Highlight Cells Rules > Text that Contains. In
the Text that Contains box, on the left, enter the text you want highlighted.
3. Select the color format for the text, and click OK.

4. Similarly do for greater and lesser values.

SCENARIO MANAGER

A Scenario is a set of values that Excel saves and can substitute automatically on your worksheet.
You can create and save different groups of values as scenarios and then switch between these
scenarios to view the different results.
If several people have specific information that you want to use in scenarios, you can collect the
information in separate workbooks, and then merge the scenarios from the different workbooks into
one.
After you have all the scenarios you need, you can create a scenario summary report that incorporates
information from all the scenarios.
Scenarios are managed with the Scenario Manager wizard from the What-If Analysis group on the
Data tab.
1. Assume that your worst case budget scenario is Gross Revenue of 50,000 and Costs of
Goods Sold of 13,200, leaving $36,800 in Gross Profit. To define this set of values as a
scenario, you first enter the values in a worksheet, as shown in the following illustration:
2. You then use the Scenario Manager dialog to save these values as a scenario.
Goto the Data tab > What-If Analysis > Scenario Manager > Add.
3. In the Scenario name dialog, name the scenario Worst , and specify that cells B2 and
B3 are the values that change between scenarios.

4. Best Case budget scenario is Gross Revenue of $150,000 and Costs of Goods Sold of
$26,000, leaving $124,000 in Gross Profit. To define this set of values as a scenario, you
create another scenario, name it Best Case.
 5. Add the Scenario name dialog, name the scenario Best , and specify that cells B8 and
B9 are the values that change between scenarios.

Scenario summary reports

1. To compare several scenarios, you can create a report that summarizes them on the same
page. The report can list the scenarios side by side or present them in a PivotTable
report.
2. A scenario summary report based on the preceding two example scenarios would look
something like the following:
GOAL SEEK

Goal seeking is the process of finding the correct input value when only the output is known. The
function of goal seeking can be built into different kinds of computer software programs like
Microsoft Excel. Goal seeking is finding the correct input when only the output is known.

1. Open a new, blank worksheet.

2. First, add some labels in the first column to make it easier to read the worksheet.
a. In cell A1, type Loan Amount.
b. In cell A2, type Term in Months.
c. In cell A3, type Interest Rate.
d. In cell A4, type Payment.
3. Next, add the values that you know.
4. In cell B4, type =PMT(B2/12,B3,B1). This formula calculates the payment amount.

Use Goal Seek to determine the interest rate

1. On the Data tab, in the Data Tools group, click What-If Analysis, and then
click Goal Seek.
 2. In the Set cell box, enter the reference for the cell that contains the formula that you want to resolve.
In the example, this reference is cell B4.

3. In the To value box, type the formula result that you want. In the example, this is -9000.
Note that this number is negative because it represents a payment.

4. In the By changing cell box, enter the reference for the cell that contains the value that you want to adjust.
In the example, this reference is cell B3.
 1.
5. Click OK.

DATA FILTERING

Use filters to temporarily hide some of the data in a table, so you can focus on the data you want to
see.

Filter a range of data

1. Select any cell within the range.
2. Select Data > Filter.

3. Select the column header arrow .

4. Select Text Filters or Number Filters, and then select a comparison, like Between.
 4. Enter the filter criteria and select OK.

Filter data in a table

When you Create and format tables, filter controls are automatically added to the table
headers. STEPS:-

Select the column header arrow for the column you want to filter.
Uncheck (Select All) and select the boxes you want to show.
 Click OK.

NVP
NPV = F / [ (1 + i)n

Where:

 PV = Present Value
 F = Future payment (cash flow)
 i = Discount rate (or interest rate)
  n = the number of periods in the future the cash flow is
How to Use the NPV Formula in Excel

Most financial analysts never calculate the net present value by hand or with a calculator; instead, they use
Excel.

=NPV(discount rate, series of cash flow)

Example of how to use the NPV function:

1. Set a discount rate in a cell.

2. Establish a series of cash flows (must be in consecutive cells).
3. Type “=NPV(“ and select the discount rate “,” then select the cash flow cells and “)”
IRR Function

IRR Formula

=IRR(values,[guess])

The IRR function uses the following arguments:

1. Values (required argument) – This is an array of values that represent the series of cash
flows. Cash flows include investment and net income values. Values can be a reference to
a range of cells containing values.
2. [Guess] (optional argument) – This is a number guessed by the user that is close to the
expected internal rate of return (as there can be two solutions for the internal rate of
return). If omitted, the function will take a default value of 0.1 (=10%).

For an initial investment of 1,000,000, the cash flows are given below:
The initial investment here is a negative value as it is an outgoing payment. The cash inflows are
represented by positive values.

The internal rate of return we get is 14%.

 XIRR Function

=XIRR(values, dates,[guess])

The formula uses the following arguments:

1. Values (required argument) – This is the array of values that represent the series of
cash flows. Instead of an array, it can be a reference to a range of cells containing
values.
2. Dates (required argument) – This is a series of dates that correspond to the given
values. Subsequent dates should be later than the first date, as the first date is the start
date and subsequent dates are future dates of outgoing payments or income.
3. [guess] (optional argument) – This is an initial guess – or estimate – of what the IRR will be.
If omitted, Excel takes the default value of 10%.

XIRR Example

Suppose a project started on January 1, 2018. The project gives us cash flows in the middle of the
first year, after 6 months, then at the end of 1.5 years, 2 years, 3.5 years, and annually thereafter.
The data given is shown below:
The formula to use will be:

We will leave the guess as blank so Excel takes the default value of 10%.

We get the result below:

 MIRR Function

=MIRR(values, finance_rate, reinvest_rate)

The MIRR function uses the following arguments:

4. Values (required argument) – This is an array or a reference to cells that contain numbers .
The numbers are a series of payments and income that incur negative values. Payments are
represented by negative values and income by positive values.
5. Finance_rate (required argument) – The interest rate that is paid on the money that
was used in the cash flows.
6. Reinvest_rate (required argument) – It is the interest that we receive on the cash flows
as we reinvest them.
Example 1

Let’s assume we need to choose one project from two given projects. The initial investment for
both projects is the same. Year-wise, the cash flows are as follows:
In the screenshot above, C5 and D5 are the initial investment amounts in Project I and Project II.
Cells C6:C10 and D6:D10 show the cash inflows for Project I and Project II, respectively.

The finance rate and the reinvestment rate of the projects is 6% and 5%, respectively. The formulas
to be used are as follows:
Remember that the initial investment needs to be in negative form, else the formula will return an
error. The initial investment is a negative value, as it is an outgoing payment, and the income
payments are represented by positive values.

We get the result below: