Formulas discussed: NPV, XNPV
The workbook used throughout this article is available here.
In a previous post we looked at how Excel calculates NPVs and IRRs and some of their weaknesses. In this post we’ll show you how you can manually calculate an NPV so that you have greater flexibility and control, and know exactly what kind of answer you’re getting.
The first part of the workbook is a refresher on how NPV and XNPV produce different results, based on their different assumptions of the start date. XNPV is useful if you are not dealing with constant, annual periods, and means you don’t have to separately calculate a discount rate for the particular period length if you start with an annual rate.
Brendan WalpoleNet Present Value by first principles
I was reading an article on CarAdvice recently that argued that increased speeding fine revenue in Victoria had done nothing to reduce accidents, and that in fact speed cameras were dangerous. The argument was that while deaths had decreased, safer cars had just transferred deaths into hospitalisations; accidents were continuing at roughly the same rate but the outcomes were better. Whilst I would tend to agree with a number of the statements regarding low-level violations (particularly as I recently copped a speeding fine on a motorbike when sunglare meant I couldn’t see the speedo for a minute, and I clearly misjudged engine sound), I thought that some of the logical steps and data analysis (or lack thereof) were worth looking into.
In making the claim that speed cameras don’t reduce the road toll, the article relied on the data in this graph.
Brendan WalpoleThe perils of data analysis – speeding fines and the road toll