Chapter 16

Building discount formulas

In this chapter, you will:

  • Learn how to calculate the present value

  • See various ways to discount cash flows, including calculating the net present value

  • Determine the payback period where you recoup an initial outlay

  • Calculate the internal rate of return for an investment

Chapter 15, “Working with investment formulas,” explains that investment calculations largely use the same time-value-of-money concepts as the loan calculations in Chapter 14, “Building loan formulas.” The difference is the direction of the cash flows. For example, the present value of a loan is a positive cash flow because the money comes to you; the present value of an investment is a negative cash flow because the money goes out ...

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