TIR VAN VPN. Parte 1. Tasa Interna de Retorno. Valor Actual Neto. Valor Presente Neto. Cálculo Excel

Welcome to this tutorial; this time we will learn how to calculate analyze and interpret the IRR and NPV benchmarks, which is also known as NPV. This is the content that we are going to develop. We will start by calculating the IRR and NPV; then we look at how it is the analysis of IRR and NPV. Then we perform the interpretation of the results of the rehearsal that we develop. Then we will interpret other contingencies that may arise with the IRR and the NPV.Then we will look at the relationship between the IRR, the TIO and the NPV. We continues its the limits and flaws that may occur when calculating the IRR, and we finalise with the issue of projects with several IRRs. So we start with the tutorial. To get it on the purpose of explaining IRR and NPV, we are going to develop and understand the following exercise. We have a spring or research projects consisting of 10 years, with their respective revenues and expenses. This row announced flood is the result of income minus expenditures. In some projects they grant us instantly the flow information; that is, you do not have to do the subtraction of the income minus overheads, because we already have the net flow.But in this exercise they should not return us the flow, for We must calculate this reason as follows: We take the income and subtract the outlays, we close parentheses and press Enter. Then we take the formula and drag it to the end until year 10. Now we are going to calculate the IRR. For this we go to the serves that Bringing Excel and select the function called IRR and press acquired. Then the space to enter the data the IRR function. Now we are located in the box called ethics, and there we are going to enter each of the flows, from year zero to the last year, in such cases until time 10. We return again to the IRR window and press countenanced, and here we already have our IRR.Something very important; as this exercise we are working with a flowing which is made up of years, in such cases the IRR will give us an annual pace or a annual effective pace. If we were working with months. The IRR that we would obtain would be an IRR monthly, and if for example we were working with one-fourths the IRR that we would have obtained it would be a quarterly IRR. But since in this case we are working with times, the IRR that we find as a result, it is an annual or effective annual IRR. Now we are going to start with the calculation of NPV or VPN. To calculate the NPV we need to have the information of the expected rate of return or desired by the investor.This frequency can have different names, depending on the province geographic location where you are. Some of the most used refers are: Discount rate. TIO or internal pace of possibilities. COK which stands for discount rate or cost of capital rate. TMRR minimum involved pace of return or expected rate of return. TMAR minimum rate acceptable conduct. TIMA minimum acceptable interest rate and TREMA rate of return minimum acceptable. However, regardless of the name abused, the important thing is to have Of course, it is the interest rate that the investor expects to obtain or deserve during that investment, and that the investor will exclusively feel quenched, when development projects fulfills or congregate that hope of achievement that he hopes to achieve. In the case of this exercise we will use the figure of TIO or internal rate of opportunity, and this interest rate is 10 percentage annual money. This TIO would also be expressed in annual effective expressions, so that We can liken it with the IRR since to attain the likenes, both rates, the IRR and the TIO, must be in the same denomination.To calculate the NPV or NPV we go to the purposes that it accompanieds Excel, and adopt the function called VNA. NAV stands for Net Present Value, and we press accept. Then the window appears to enter the data to the VNA affair. In the box that says proportion now we are going to enter the value of the TIO, the rate of 10%, then we return again to the VNA serve opening. Then in the box that says ethic 1, here we are going to enter flows from year 1 to year 10. Note that in this box we do not enter the value of the time 0, or the value of the initial asset, since we will make this into account later. and now we return to the VNA function window and press consented. Now we are at the end of the formula, here in the function table and we contribute the best interests of the the initial asset or the data year zero, and press Enter. And here we already have our VAN or VPN. Now we are going to calculate the NPV or VPN through a second method, which consists of bringing to the present value or the current value, each one of the flows that are in the future, independently. We initially target the flow of the year zero, that is, -2 000 and press Enter. Note that the flow of year zero, or the initial financing of -2 000 cash groups we sit it accurately the same, and the reason is that as that flowing is already at moment zero or in the current, you do not need to apply any formula to produce that spurt to present value.The formulas to bring a move to the present value, must be use for the flows we expect to receive in the future; that is, flows from year 1 onwards. Now we are going to enter the present value or portray ethic perform. For that we go to the parts that Excel introduces and we select the function called VA, current significance or importance present and press accept. Then the window appears to enter the data to the function current evaluate. In the box that says frequency we are going to enter the data of the TIO, the rate of 10% and we return to the VA function window. This charge of the TIO that we just registered, we will to be established with the F4 key, and in this way, that charge will remain as a set citation in the VA function In the box that says Nper, we are going to enter the number of the period, that is, time 1 and return back to the VA function opening. It is important that when we use this VA function, we will make sure that the rate and the number of seasons are expressed in the same sect that is, if the flows are received at the end of each year as in this case, we must named an annual charge or annual effective.If the flows were received at the end of each month, we should place a charge monthly and so on, the rate and the period at the time of entering them in this formula, must to be expressed in the same denomination. In the box called future appraise, we are going to enter the best interests of the the flow found in year 1, that is, the 100 monetary contingents that are found in year 1, and we return again to the VA function space. Note that until At the moment, the formula is giving us a negative result, this happens because this formula what it does is bring a appreciate that is in the future to the present value; that is, those 100 sections that are in the future, are equivalent to today an investment of minus 91 cash components, and since it is an investment, for that reason Excel lieu it negatively, as -9 1, because Excel considers it to be an investment, that is, a negative flow, a disbursement that it has to be done.This formula can also be interpreted in another way, and that is if we want have 100 monetary legions within a year, we need to invest 91 monetary measurements today at a rate of 10%, which in this case would be the TIO rate. So, as in our formula we don’t want hold negative lists, what we do is that before residence the future evaluate, we locate it the minus signed, and be understood that in this way and the result of the formula modifications negative signaling to a positive signal, and then we pulps accept, and here we have the present value of those 100 money groups, which will be received at the end of year 1. Now we sit ourselves in the formula and we dragged it down to the last year. Now we are going to add all the flows to calculate the NPV and we do with the sum purpose, adopting from year zero to the last year; in such cases until time 10. We close parentheses and press Enter, and now we have the NPV result. As “youre seeing” the NPV is the sum of those values that are in the future, brought to present value and subtracting the initial financing impelled in time 0. Note that with this method, the outcome will also It are similar as the one we obtained when we used the VNA function that Excel draws. Now let’s perform the analysis or interpreting of the IRR and NPV.Let’s start first with the IRR analysis. The IRR is the rate of return that a project has. IRR conveys internal charge of return, internal frequency of return or internal frequency of return. The IRR is also characterized as the interest rate that moves the NPV or NPV equal to zero. Let’s do the expression. If we sit the value of the IRR that we have just calculated, in the cell where we have the TIO, look at that the value of the NPV or NPV gives us a result of zero.Now let’s restore the practice with the importance original that “weve had” in the TIO. The IRR provides us with information about the profitability of the project. When the IRR is positive, it means that the project is productive. When the IRR is negative it means that the project is not fruitful. However, the decision to accept or accept a project is not only made on the basis of profitability, but also the viability or feasibility from the investor’s point of view, and for that, the NPV or VPN indicator.The NPV or VPN is an indicator, which allows us to bring to the current minute or introduce, the flows that we expect to receive in the future, dismissing these overflows with a proportion of discount or a pace of return expected by the investor. When the NPV is higher that 0, that is, that it is a positive quantity, means that the project is viable or convenient for the investor; because future spurts when brought to present value, excess investment hence, a surplus or an economic profit is generated over the value of the investment concluded. When the NPV is equal to zero, it means that the project is viable or easier for the investor, because the future springs when brought to present value, exactly concur with the speculation to be made, which indicates that if the asset is attained, the flow or project, will grant accurately the profitability expected by the investor, say that it will award exactly the TIO expected by the investor, generating economic impartiality. When the NPV is less than zero, that is, it is a negative number, it means that the project is not workable or it is not convenient for the investor, because the future springs when returning them to present value, are less than investment, hence a deficit or an economic loss is generated, on the value of the investment made.The NPV has a very close relationship with the IRR and with the TIO. When the IRR is greater than the TIO, the NPV will give us a positive decision; What does it symbolize that the project is viable or convenient for the investor. When the IRR is equal to the TIO the NPV will give us one of the outcomes of 0, which indicates that the project is still viable or convenient for the investor. And when the IRR is lower than the TIO, the NPV will give us a negative result, which means that the project is not viable, or is not suitable for potential investors. Note that the project will only be viable for the investor, if the IRR granted the project, surpasses or equals the TIO expected by the investor, or the rate of return that the investor hopes to obtain. When a project is viable for the investor, the job, and when a project is not viable for the investor, development projects should be rejected.Now We have already explains that the IRR and NPV are analyzed, let’s move on to oblige the interpretings of the usage we are doing. Note that in such cases the IRR is positive and it is also greater than the TIO, hence , had pointed out that the NPV gave us a positive evaluate, and these results are interpreted as follows. The job is profitable, since the IRR indicates that the project grants a profitability of 15. 88 percentage effective annual. The IRR of 15.88 percentage annual effective that development projects has, is less than the annual effective 10 percent TIO expected by the investor as rate of return. Therefore, the profitability are necessary for potential investors. The projection is viable, since the NPV or NPV indicates that after discounting the flows futures and accompanying them to the present value, a surplus or economic revenue of 650 divisions is secured money on the value of the investment. Therefore, if you can accept the project, since it is convenient for the investor. With this same exercise, we are going to learn how to interpret a projection where the IRR is positive, but lower than the TIO, and the NPV is negative.For that, to the project in the expenses of year 3. we are going to increase the expense. Currently, the expenditures for that time are in 1200 monetary groups, then this we are going to change for 3000 money cells, that is to say that we increased the outlay or expenses of year 3 , was noted that in year 3 now the expenses are higher than income, for which we have a loss in that year. Loss has an impact negative in the flow, for the above reasons the IRR and NPV results deepen. Now the IRR is 4.48 percentage effective per year.It is still a positive IRR, but it is less than the TIO of 10 percent annual currency, which is the rate expected by the investor. As the IRR is lower than the TIO the NPV gave us a negative result, and these results are interpreted as follows. The job is fruitful, since the IRR indicates that the project affords a profitability of 4.48 percent annual cash, however the IRR of 4.48 percent effective per year that development projects has is less than the annual effective 10 percentage TIO expected by the investor as a cost effectiveness.Therefore, although the project is profitable, it does not satisfy the requirement for profitability by the investor. The programme is not practicable, since the NPV or VPN indicates that after discounting future springs and bring them to present value, an financial loss of minus 703 is obtained monetary gangs on the value of the investment. Therefore, this project should be rejected, because it is not viable or it is not convenient for the investor. Now let’s see the case where the IRR is negative and the NPV is negative. To make this explanation, to the exercise that we are developing, we are going to increase outlays or overheads again. We will make the value of the expenses of year 4, which presently 1000 money parts, and we are going to change it to 4000 currency units. Now in year 4, we have more outlays than income, for the above reasons, in that year you get a loss. As we incorporate more outlays into the project, this will affect it in a negative. Note that the IRR is now negative and the NPV continues to be negative, and these results are interpreted as follows.The job is not rewarding, since the IRR indicates that the project applies a negative return of -8. 68 percent effective annual. The negative IRR of the least 8.68 percent effective per year, is less than the TIO of 10 percentage effective annual, expected by the investor as the rate of return, therefore, the rate is not satisfied of profitability required by the investor. The activity is not practicable, since the NPV or VPN indicates that after discounting future spurts and introducing them to present value, a economic loss of less than 2,752 money groups on the value of the investment; for the Therefore, this project should be rejected, because it is not feasible, or “its not” convenient for the investor,

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