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0201 MAX() in Financial Modeling

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Transcript

Hi there. In this case study, I will talk about the applications of Max formula specifically in the area of financial modeling. Now, going by the terminology of the formula a max means amongst the group of numbers, the maximum number will be chosen. Now, how do you use this in financial model and costing? Well, in this very, very theoretical case that lies before us, I have a cell which says income, the tax percentage, well, now, if I have to calculate the income tax, what would I typically say five lakh multiplied with 20%. That's one lakh.

Now, what if, in one of the years the income happens to be negative, the income tax tells me it's a negative one lakh which is not allowed, I would have wanted a numbered zero out there. So what I'm going to do is first if you press Control Zed, let me delete the yellow cell. Let me write a formula which says equal to Max Max Of what? Zero and the positive number which is in the form of identity. tax. So I choose five lakh multiplied with 20%.

Now notice, there will be a battle between these two numbers one is a zero and one is a calculation to one lakh versus zero, whichever is maximum will be picked up, in this case one lakh. But tomorrow, or maybe the next year in case the income happens to be negative, the battle is between zero and negative one lakh who will win it, of course zero. And that's the reason you're getting to see the stache, which is just another form or display value of zero. So this is one of the applications of Max formula. Let me take you through another case study. For example, you would have found this in one of the mobile phone bills or electricity bill, or any of the utilities bill, that if you don't pay it on time, a minimum value of 100 a minimum penalty of 100 will be divide.

But if you have not paid this for quite some time, then 2% of the dues shall be applicable, whichever is higher. That means either 2% of the dues, or hundred, whichever is higher. So now let me show you how this works. Logic can be incorporated in this particular problem using a formula. So I'm writing equal to Max, writing hundred, comma, and then posting a formula that says 5000 multiplied with 2%. I close the bracket and I press enter.

As I copy paste this formula down, notice the first case hundred next case 140. third case 100 minimum. Even if the minimum news was 100 rupees doesn't matter, you have to pay an additional alibi of hundred. But in case in case the amount of juice was 14,000, it's a big value. So it has to be 2% of 14,000, which in this case is 280. So this was more on the applications of Max formula, especially in decision making in Excel.

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