Apple iWork '09 User Manual

Page 133

Chapter 6

Financial Functions

133

Usage Notes

periodic-discount-rate is specified using the same time frame as the time frame used
for the cash flows. For example, if the cash flows are monthly and the desired annual
discount rate is 8%, periodic-discount-rate must be specified as 0.00667 or 0.667%
(0.08 divided by 12).
If cash flows are irregular, use the IRR function.

Example

Assume you are presented with the opportunity to invest in a partnership. Because the partnership is
still developing its product, an additional $25,000 and $10,000 must be invested at the end of the first
and second years, respectively. In the third year the partnership expects to be self-funding but not
return any cash to investors. In the fourth and fifth years, investors are projected to receive $10,000
and $30,000, respectively. At the end of the sixth year, the company expects to sell and investors are
projected to receive $100,000. In order to invest, you want to achieve an annual return of at least 10%.
Using the NPV function, you can determine the maximum amount you are willing to initially invest.
Based on the assumptions given, the NPV would be $50,913.43. Therefore if the required initial
investment is this amount or less, this opportunity meets your 10% goal.

periodic-rate Year 1

Year 2

Year 3

Year 4

Year 5

Sales
proceeds

=NPV(B2,
C2:H2)

0.10

-25000

-10000

10000

30000