Have you been using the XNPV and XIRR functions? They are the finance functions that allow us to use dates instead of year numbers. Look at this screenshot to see how I set up two small capital investment appraisal problems:

leap_year_effect_1

The programming you need to make these work looks like this:

leap_year_effect_5

Look at your results: they are not consistent in the five year project profile. That is, the NPV and XNPV results are different from each other and the same happens with IRR and XIRR.

Watch this video to find out what has gone wrong and then ask yourself, is this a serious problem and is there anything you can do about it?

Video:

You can download my Excel file to save you a little bit of time, too: leap_year_effect

Conclusion

Nothing went wrong but just be aware that the XNPV and XIRR do take leap years into account so their answers will be slightly more perfect than their counter[arts!

 

Duncan Williamson

22nd June 2018

 

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