Finance 303
–
Financial Calculators
HP 12C
Example: Project X has the following expected aftertax net cash flows. The firm's cost of capital is 10%.
(Note: Clear all previous work.)
Expected Net AfterTax Cash Flows Project X
Year
Cash Flow
0 (initial outlay)
$2,000
1
1,000
2
800
3
600
4
200
The IRR for Project X is:
{2,000}
→
[CHS] [PV]
{1,000}
→
[PMT]
{800}
→
[PMT]
{600}
→
[PMT]
{200}
→
[PMT]
[IRR] gives the result, 14.48884.
A note on Net Present Value (NPV): For NPV calculations on the examination, we recommend computing
the present value of each individual cash flow and adding them together. No need to memorize more
calculator functions 
you’ve got enough to memorize for the exam!
However, for the curious, the
keystrokes to calculate NPV are provided below:
The NPV of Project X is:
{2,000}
→
[CHS] g[PV]
{1,000}
→
g[PMT]
{800}
→
g[PMT]
{600}
→
g[PMT]
{200}
→
g
[PMT]
{10}
→
[i]
f[PV] gives the result, $157.63951
Remember: The [PV] is the [WHITe] name of the key. We use this convention because the white keys
are easier to read and identify.
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Finance 303
–
Financial Calculators
HP 10B
Example 3
—
Present Value of Uneven Cash Flows
In addition to the previously mentioned financial keys, the 10B also has a key labeled
CF
j
to handle a series of uneven
cash flows.
Suppose that you are offered an investment that will pay the following cash flows at the end of each of the next five
years:
Period
Cash Flow
0
0
1
100
2
200
3
300
4
400
5
500
How much would you be willing to pay for this investment if your required rate of return is 12% per year?
We could solve this problem by finding the present value of each of these cash flows individually and then summing the
results. However, that is the hard way. Instead, we'll use the cash flow key (
CF
j
). All we need to do is enter the cash flows
exactly as shown in the table. Again, clear the financial keys first. Now, press
0
then
CF
j
, 100
CF
j
, 200
CF
j
, 300
CF
j
, 400
CF
j
,
and finally 500
CF
j
. Now, enter 12 into the
I/YR
key and then press
Shift
NPV
. We find that the present value is
$1,000.17922.
Example 4
—
Net Present Value (NPV)
Calculating the
net present value
(NPV) and/or
internal rate of return
(IRR) is virtually identical to finding the present
value of an uneven cash flow stream as we did in Example 3.
Suppose that you were offered the investment in Example 3 at a cost of $800. What is the NPV? IRR?
To solve this problem we must not only tell the calculator about the annual cash flows, but also the cost. Generally
speaking, you'll pay for an investment before you can receive its benefits so the cost (initial outlay) is said to occur at
time period 0 (i.e., today). To find the NPV or IRR, first clear the financial keys and then enter 800 into
CF
j
, then enter
the remaining cash flows exactly as before. For the NPV we must supply a discount rate, so enter 12 into
I/YR
and the
press
Shift
PRC
(note that above the PRC key says NPV in yellow). You'll find that the NPV is $200.17922.
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 Winter '09
 DAVIDLITT
 Net Present Value

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