Use the SYD function to calculate depreciation In this tip, we calculate the depreciation of an investment. To do so, use the SYD function, which returns the sum-of-years’ digits depre - ciation of an asset for a specified period. SYD(cost, salvage, life, per) cost: The asset’s initial cost. salvage: The value of the asset at the end of the deprecation. life: The number of periods over which the asset is depreciated. per: The period. per must use the same units as life. 4 To calculate depreciation: 1. In cell B1 enter the cost of purchase. 2. In cell B2 enter in years the number of periods over which the purchase will be depreciated. 3. Enter the salvage value in cell B3. 4. Calculate the depreciation in the fifth year in cell B5 with the following formula: =SYD($B$1,$B$3,$B$2,5). 5. Press <Enter>. Note: SYD is calculated as follows: = ((cost–salvage)* (life–per+1)*2) / (life*(life+1)). 188 Chapter 7 Figure 7-1 Use the SLN function to calculate straight-line depreciation Here we want to calculate the straight-line depreciation of an investment. Use the SLN function, which returns the straight-line depreciation of an asset for one period. SLN(cost, salvage, life) cost: The asset’s initial cost. salvage: The value of the asset at the end of the depreciation. life: The number of periods over which the asset is depreciated. 4 To calculate depreciation: 1. In cell B1 enter the initial cost. 2. In cell B2 enter the number of periods as years. 3. Enter the salvage in cell B3. 4. Calculate the depreciation in the fifth year in cell B5 with the following formula: =SLN($B$1,$B$3,$B$2). 5. Press <Enter>. Basic Financial Functions 189 7 Figure 7-2 Use the PV function to decide amount to invest In this example you have to decide on the amount of money you want to invest. To solve this problem, you use the PV function, which returns the present value of an investment. This is the total amount that a series of future payments is worth now. PV(rate, nper, pmt, fv, type) rate: The interest rate per period. nper: The total number of payment periods in an annuity. pmt: The payment made each period, which is a constant value. fv: The future value. This is the amount you want after the last payment is made. type: A number that indicates when payments are due. 0 or omitted indicates the end of the period, and 1 indicates the beginning of the period. 4 To decide how much to invest: 1. In cell C1 enter the estimated return per year. 2. In cell C2 enter the number of periods in years. 3. Enter the interest rate in cell C3. 4. Calculate the maximum investment amount in cell C4 with the following formula: =PV(C3,C2,C1). 5. Press <Enter>. 190 Chapter 7 Figure 7-3 Use the PV function to compare investments Two investments have to be compared. The amount of each invest - ment, the number of periods, the interest, and the estimated return are given. To calculate and compare, use the PV function as described below. 4 To compare investments: 1. In cells B2 and C2 enter the investment amounts. 2. In cells B3 and C3 enter the interest rates. 3. In cells B4 and C4 enter the number of periods. 4. In cells B5 and C5 enter the estimated return of each investment. 5. Select cells B7:C7 and type the following formula: =-PV(B3,B4,B5). 6. Press <Ctrl+Enter>. 7. Select cells B8:C8 and type the formula =B7-B2. 8. Press <Ctrl+Enter>. Note: Investment 2 is more expensive than Investment 1. Basic Financial Functions 191 7 Figure 7-4 Use the DDB function to calculate using the double-declining balance method The DDB function returns the depreciation of an asset for a speci - fied period, using the double-declining balance method or some other method that can be specified. DDB(cost, salvage, life, period, factor) cost: The asset’s initial cost. salvage: The value of the asset at the end of the depreciation. life: The number of periods over which the asset is being depreciated. period: The period for which the depreciation is being calculated. factor: The rate at which the balance declines. If factor is omit- ted, it is assumed to be 2, which specifies the double-declining balance method. 4 To use the double-declining balance method: 1. Enter the initial cost in cell B1, the number of periods in cell B2, and the salvage in cell B3. 2. Calculate the depreciation in the fifth year in cell B4 with the following formula: =DDB($B$1,$B$3,$B$2,5). 3. To calculate the depreciation after one day, type this for - mula in cell B5: =DDB($B$1,$B$3,$B$2*365,1). 4. To calculate the depreciation after the first month, use this formula in cell B6: =DDB($B$1,$B$3,$B$2*12,1). 192 Chapter 7 Basic Financial Functions 193 7 Figure 7-5 Use the PMT function to determine the payment of a loan To determine the payment amount for a loan based on constant pay - ments and a constant interest rate, use the PMT function. PMT(rate, nper, pv, fv, type) rate: The interest rate of the loan. nper: The total number of payments for the loan. pv: The present value. This is also referred to as the principal. fv: The future value. This is the amount you want after the last payment is made. If fv is omitted, it is assumed to be 0. type: A number that indicates when payments are due. 0 or omitted indicates the end of the period, and 1 indicates the beginning of the period. 4 To determine the payment for a loan: 1. In cell B1 enter the interest rate. 2. In cell B2 enter the number of periods in months. 3. In cell B3 enter the amount of the loan. 4. In cell B5 calculate the payment after one month with the following formula: =-PMT($B$1/12,$B$2,$B$3). 5. Press <Enter>. 194 Chapter 7 Figure 7-6 Use the FV function to calculate total savings account balance In this example you want to save money for five months. The inter - est rate is 3.5%. Every month you deposit $500 at the bank. How much money is in your bank account after five months? This ques - tion can be answered by using the FV function. It returns the future value of an investment based on periodic, constant payments and a constant interest rate. FV(rate, nper, pmt, pv, type) rate: The interest rate per period. nper: The total number of payment periods in an annuity. pmt: The payment made each period, which is a constant value. pv: The present value. This is the amount that a series of future payments is worth right now. type: A number that indicates when payments are due. 0 indi- cates the end of the period, and 1 indicates the beginning of the period. 4 To calculate the total of an account with regular deposits and a constant interest rate: 1. Enter the current interest rate in cell B1 and the number of periods in cell B2. 2. In cell B3 enter the monthly amount to be put in the sav - ings account. 3. In cell B4 type the formula =-FV(B1/12,B2,B3). 4. Press <Enter>. Basic Financial Functions 195 7 196 Chapter 7 Figure 7-7 Use the RATE function to calculate interest rate Let’s say a bank advertises that if you deposit $500 each month for 12 years, you will have $100,000 at the end of the period. What is the interest rate the bank is paying? To answer this question, use the RATE function, which returns the interest rate per period of an annuity. RATE(nper, pmt, pv, fv, type, guess) nper: The total number of payment periods in an annuity. pmt: The payment made each period, which is a constant value. pv: The present value. This is the amount that a series of future payments is worth right now. fv: The future value. This is the amount you want after the last payment is made. type: A number that indicates when payments are due. 0 or omitted indicates the end of the period, and 1 indicates the beginning of the period. guess: A guess for what the interest rate will be. If omitted, Excel uses 10%. 4 To calculate the interest rate: 1. In cell B1 enter the number of periods in years. 2. In cell B2 enter the monthly amount to deposit. 3. In cell B3 enter the final value the bank has advertised. 4. In cell B5 type the following formula: =RATE(B1*12,-B2,0,B3,0)*12. 5. Press <Enter>. Basic Financial Functions 197 7 Figure 7-8 [...]... range between x and y: 1 Copy range A1:E1 2 Select cell A14 and paste the copied cells with 3 Select cell C15 and type vegetable 4 In cell E15 type >1.75 5 In cell F15 type . cells B3 and C3 enter the interest rates. 3. In cells B4 and C4 enter the number of periods. 4. In cells B5 and C5 enter the estimated return of each investment. 5. Select cells B7:C7 and type. period, and 1 indicates the beginning of the period. 4 To calculate the total of an account with regular deposits and a constant interest rate: 1. Enter the current interest rate in cell B1 and the. this:=DCOUNT(A1:E11,E14,A14:E 16) . Database Functions 201 8 Figure 8-2 Use the DCOUNT function to count cells in a range between x and y Use the data in the previous example to continue working with the DCOUNT