Cash Flow Calculations 91
NPV and IRR/YR: Discounting Cash Flows
Chapter 5 titled,
Picturing Financial Problems
demonstrates the use of cash flow diagrams to
clarify financial problems. This section describes discounted cash flows. The
NPV, NFV
and
IRR/YR
functions are frequently referred to as
discounted
cash
flow
functions
.
When a cash flow is discounted, you calculate its present value. When multiple cash flows
are discounted, you calculate the present values and add them together.
The net present value (
NPV
) function finds the present value of a series of cash flows. The
annual nominal interest rate must be known to calculate
NPV
.
The net future value (
NFV
) function finds the value of the cash flows at the time of the last cash
flow, discounting the earlier cash flows by the value set for the annual nominal interest rate.
The internal rate of return (
IRR/YR
) function calculates the annual nominal interest rate that is
required to give a net present value of zero.
The utility of these two financial tools becomes clear after working a few examples. The
next two sections describe organizing and entering your cash flows. Examples of
NPV
,
NFV
, and
IRR/YR
calculations follow.
Organizing Cash Flows
The cash flow series is organized into an
initial
cash
flow
(CF
0
) and succeeding
cash
flow
groups
(up to 44 cash flows). CF
0
occurs at the beginning of the first period. A cash flow
group consists of a cash flow amount and the number of times it repeats.
For example, in the following cash flow diagram, the initial cash flow is -11,000. The next
group of cash flows consists of six flows of zero each, followed by a group of three 1,000
cash flows. The final group consists of one 10,000 cash flow.
Y:::y¤
-4,000.00
(
CF 2
flashes, then
disappears)
Enters second cash flow. Note
the
CFLO
and
CF
annunciators.
JJjSV7Gd¤
11,765.29
(
CF 3
flashes, then
disappears)
Enters third cash flow. Note the
CFLO
and
CF
annunciators.
\Á
38.98
Calculates annual nominal yield.
aJG
3.25
Monthly yield.
Table 8-2 Example 1: a short term investment
Keys
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Summary of Contents for 10bII+
Page 1: ...i HP 10bII Financial Calculator User s Guide HP Part Number NW239 90001 Edition 1 May 2010 ...
Page 3: ...iii HP 10bII Financial Calculator ...
Page 30: ...At a Glance 22 ...
Page 144: ...Statistical Calculations 136 ...
Page 183: ...Warranty Regulatory and Contact Information 9 ...
Page 184: ...Warranty Regulatory and Contact Information 10 ...