Principles of Finance with Excel, 2nd edition
Part 1: Capital Budgeting and Valuation


Note (January 2012): In my teaching this year, Im trying something new. At the beginning of most of the classes, I give a short quiz. I let the students grade their own quizzes in class. The scores count for very little in the final grade, but serve to reinforce the material and give me a starting point for my lectures. I will post these quizzes as I give them; each one roughly covers a chapter of PFE. The course Im teaching does Chapters 1-13, so not all chapters will be covered by a quiz.


Introduction to accountinga chapter from PFE1

(I left this out of the second edition, but am making the typescript available)


Chapter 1
Introduction to finance

8 principles of finance
Building good financial models
Adding Getformula to your spreadsheet

PPT for Chapter 1

Chapter 2
Time value of money

Future value and present value
Net present value (NPV)
Internal rate of return (IRR)
Loan tables, amortization
Saving for the future
How long will it take to pay off a loan?


Excel functions: NPV, IRR, FV, PMT, NPER, Goal Seek

PPT for Chapter 2


Additional problems

Excel with answers



Chapter 3
What does it cost? IRR and the time value of money

Dont trust quoted interest rates

Computing the effective annual interest rate (EAIR)
Calculating the cost of a mortgage
Lease or purchase
Multi-period compounding and the effective annual interest rate
Continuous compounding


Excel functions: IRR, PMT, IPMT, PPMT, Rate, NPV, PV, Exp, Ln, Sum, Max, Goal Seek

PPT for Chapter 3

Case: Confusion between APR and actual EAIR



        Answer spreadsheet

Social security problem



Car lease: Volt example




Chapter 4
Intro to capital budgeting

NPV rule for choosing investments
IRR rule for choosing investments
Consider only marginal cash flows
The effect of taxes
The cost of foregone opportunities
Accelerated depreciation


Excel functions: NPV, IRR, Data Table

PPT for Chapter 4

Case: Extension of the real estate case of Chapter 4



        Template spreadsheet

        Solution spreadsheet


Chapter 5
More capital budgeting

Problems with IRR
Multiple IRRs
Choosing between different life spans
Lease vs purchasing with taxes
Mid-year discounting
Inflation and capital budgeting
Understanding TIPS


Excel functions: IRR, NPV, Sum, PMT, If, XNPV, XIRR

PPT for Chapter 5


Additional problems

Excel with answers


TIPS case:

        Case (PDF)

        Case template (Excel)

        Case solution (PDF)

        Case solution (Excel)


Chapter 6
Choosing a discount rate

Funding cost as discount rate
Weighted average cost of capital (WACC)
Gordon dividend model
Two uses for the WACC


Excel functions: NPV, IRR, PMT

PPT for Chapter 6

Excel spreadsheet for chapter 6 PPT. This is a large (~13MB ) file containing many Yahoo screen clips.

Chapter 7
Financial planning models and valuation

Building a financial planning model
Free cash flow prediction
Reconciling cash balances
Discounted cash flow (DCF) valuations


Excel functions: NPV, Sum, If, Data Tables, circular references

PPT for Chapter 7


For more advanced valuation models, PowerPoints, and issues, see Chapter 16 materials.