document.write( "<A HREF=/cgi-bin/jump-to-question.mpl?question=971795>Question 971795</A>: <I><SPAN STYLE=\"word-break: break-all;\"> How do I solve for X in excel?<BR>\n" );
document.write( "Consider the following project’s cash flows:\r<BR>\n" );
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document.write( "            n                      Net Cash Flow\r<BR>\n" );
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document.write( "            0                          -$15,500\r<BR>\n" );
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document.write( "            1                           $2,500\r<BR>\n" );
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document.write( "            2                               X\r<BR>\n" );
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document.write( "            3                           $7,500\r<BR>\n" );
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document.write( "              Assume that the project’s IRR is 12%.<BR>\n" );
document.write( " a)      Find the value of X. </SPAN>\n" );
document.write( "</I><HR><TABLE width=100%><TR><TD><B><A HREF=http://www.algebra.com/>Algebra.Com's</A> Answer #594408 by </B><A HREF=/tutors/aboutme.mpl?userid=Theo><B>Theo(13342)</B></A><img src=\"/images/stars/stars-13.gif\" alt=\"\" >&nbsp;<A HREF=/tutors/aboutme.mpl?userid=Theo><IMG SRC=http://www.algebra.com/images/aboutme-small.gif BORDER=0 alt=\"About Me\" VALIGN=MIDDLE></A>&nbsp;<IMG SRC=http://www.algebra.com/cgi-bin/show-face.mpl?user=Theo><BR>You can <A HREF=\"/cgi-bin/embed-solution.mpl?show=1&solution=594408\">put this solution on YOUR website!</A><BR><SPAN STYLE=\"word-break: break-all;\"> excel is tricky, but it can be done if you're careful.\r<BR>\n" );
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document.write( "there are two functions involved.\r<BR>\n" );
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document.write( "there's the NPV function and the IRR function.\r<BR>\n" );
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document.write( "the NPV function format is NPV(rate,data range).\r<BR>\n" );
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document.write( "the IRR function format is IRR(data range)\r<BR>\n" );
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document.write( "you set up your data in a range of cells with each time point being right under the other.\r<BR>\n" );
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document.write( "you put a zero in for the value of x that is missing.\r<BR>\n" );
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document.write( "you can't leave that field blank.\r<BR>\n" );
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document.write( "you have to put in a zero.\r<BR>\n" );
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document.write( "otherwise you'll get the wrong answer.\r<BR>\n" );
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document.write( "i know because i left it blank and had to do some extra analysis to understand why i wasn't getting what i expected to get.\r<BR>\n" );
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document.write( "you run the NPV function and it will tell you what the NPV is.\r<BR>\n" );
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document.write( "in this case, at a rate of .12, the NPV was ($7,079.92) which means a negative 7,079.92.\r<BR>\n" );
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document.write( "the value that was missing caused the NPV to be negative 7079.92.\r<BR>\n" );
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document.write( "those results are in the original column.\r<BR>\n" );
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document.write( "take that number and inflate it at the interest rate for the time period that it belongs in.\r<BR>\n" );
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document.write( "here's where excel gets tricky again.\r<BR>\n" );
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document.write( "it does a present value to one year more than the initial investment year.\r<BR>\n" );
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document.write( "so the value showed as in time point 2 but you have to inflate it 3 years and not two.\r<BR>\n" );
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document.write( "this conforms with the present value routine of excel used in the NPV function.\r<BR>\n" );
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document.write( "you also have to make it positive since it is a positive cash flow you are looking for.\r<BR>\n" );
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document.write( "7079.92 * 1.12^3 = 9946.777846\r<BR>\n" );
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document.write( "that's the value you need to replace the 0 from time point 2 with.\r<BR>\n" );
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document.write( "your revised cash flow is shown in the revised column.\r<BR>\n" );
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document.write( "the NPV becomes 0 as it should if the internal rate of return is 12%.\r<BR>\n" );
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document.write( "the irr field shows you the result of the IRR function of excel.\r<BR>\n" );
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document.write( "after the revision, you get an IRR of 12% as you should.\r<BR>\n" );
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document.write( "the results from my excel spreadsheet are shown below:\r<BR>\n" );
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document.write( "<IMG STYLE=\"max-width:80%;\" src = \"http://theo.x10hosting.com/2015/052401.jpg\" alt=\"$$$\" </>\r<BR>\n" );
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document.write( "tp means time point<BR>\n" );
document.write( "cf means cash flow\r<BR>\n" );
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document.write( "normally you present worth to time point 0.<BR>\n" );
document.write( "excel went one time point further with their npv function.<BR>\n" );
document.write( "it doesn't change the result.<BR>\n" );
document.write( "it just give you a different number than you would expect if you knew that present worthing normally goes to time point 0.\r<BR>\n" );
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document.write( " </SPAN>\n" );
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