All language subtitles for 14. Financial Formulas Case Study - Solution

In this video we will use financial formulas to help sort of decide whether we should borrow and which

loan is better for him to take.

To decide whether startups should invest in this new opportunity.

We need to first decide the internal rate of return on this investment.

If the internal rate of return is more than the interest rate paid to the bank then this is a viable

project.

We will use the IRR function to calculate the internal rate of return for the project selected at five

and type equal to I

in the values v select cells eaten through the three meter.

The cash flows from the investment growth bucket and presented

you can see that the internal rate of return on this investment is 18 percent which is higher than the

interest rate does by either of the bank's 10 percent and twelve percent in this case.

It makes sense for Sara to borrow money and invest in this machinery.

However we still don't know which loan can be serviced using the cash flow from the investment so let

us calculate annual repayment for both of these loans using common Excel financial formulas.

Let us calculate the EMI for both the loans.

Then we can multiply that EMI by twelve to get the annual payment for it.

No.

Let us first calculate the EMI for loan from bank selected basics we really was the PMP function to

calculate the EMI enter

BMT

select the interest rate which is in sale before the sale before has annual interest rate whereas the

loan repayment has to happen every month.

So we need to convert this annual rate of interest into monthly interest rate.

So we need to divide before by twelve to get the monthly interest rate in par is in sell V3 48 months

the present value of the loan is the loan amount which is five lakh rupees I'll close the bracket and

presenter.

Now we have the EMI equated monthly instalment for loan from bank which is twelve thousand six hundred

eighty one rupees and twenty nine per say let us copy this formula and pasted in sell C6 to get the

year my first loan from bank B

that EMI for loan from bank B is eleven thousand one hundred twenty two rupees and 22 percent let us

know calculate the annual loan repayment.

So let's all be seven into equal to basics which is the EMI for a loan from bank.

Multiplied by twelve.

To get the annual repayment amount.

Presenter Now we get the annual loan repayment amount from loan from bank in let us do the same thing

for loan from bank B in Cell C 7 and equal to C6 and to well.

This gives us the annual loan repayment for loan from bank B.

Now you can see that loan from bank requires an annual repayment of one like fifty two thousand one

hundred seventy five rupees and 50 percent which is more than the cash flow from investment in the first

two years.

Therefore loan from bank cannot be serviced using cash flow from the investment.

The annual repayment for loan from bank B is one like thirty two thousand four hundred sixty six represent

69 percent which is less than one like forty thousand.

It is the return from investment in the first two years in the subsequent years.

The return is much higher.

Therefore the loan can be serviced in all the five years using cash flow from the investment.

Therefore Sara should go ahead and borrow from bank B.