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Financial_Calculators - Finance 303 Financial Calculators...

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Finance 303 Financial Calculators HP 12C Example: Project X has the following expected after-tax net cash flows. The firm's cost of capital is 10%. (Note: Clear all previous work.) Expected Net After-Tax 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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