Finance paper in excel spreadsheet
The internal rate of return (IRR) of a project is the discount rate that equates the present value of all cash inflows to the initial investment. This can be calculated by solving for the interest rate in which net present value equals zero. To calculate NPV, one must first determine all expected cash inflows and outflows associated with a project – then discount them at the required rate of return to reflect their current worth. In this case, if the required rate of return is 12% then NPV would be equal to:
NPV = [(C1/[1+12%] + C2/[1+12%]² + … ]- I
where C represents expected future cash flows and I being initial investment costs. Once both calculations are completed – IRR and NPV – they can used to evaluate whether or not a particular project should be pursued based on its financial viability.
Ultimately, these metrics provide an effective way for businesses to assess potential investments so they can make more informed decisions when it comes to allocating resources!