Net present value of cash flows
Add up uneven cash flows after discounting each back to today.
Net present value (NPV) answers: after accounting for the interest I could have earned elsewhere, is this investment worth it? Each future cash flow is discounted back to today, then everything is added up. A positive NPV means the project beats the discount rate.
Example: pay 10,000 now (negative), then receive 3,000, 4,200 and 6,800 at the end of years 1, 2 and 3. The discount rate is 10%.
Classic Financial II
Start on the main screen: Press 2ND then CPT (QUIT) to leave a worksheet and return to the plain calculator. ON/OFF also drops back to the standard screen and clears an error.
Open the cash flow worksheet with the CF key. The first entry, CF0, is today. Type 10000 and press the minus-sign key, then enter.
CF10000+/-ENTERMove down to the first cash flow, C01. Type 3000 and enter, then press down to its frequency line F01 (leave it at 1).
↓3000ENTER↓Press down to C02 and enter 4200, then skip its frequency line with down and enter 6800 as C03.
↓4200ENTER↓↓6800ENTERPress NPV, type the 10% rate and enter, then move down and press CPT.
NPV10ENTER↓CPT
You should seeNPV= 1,307.29
RPN Financial 12
Start on the main screen: There is no menu to leave: the display always shows the X register. Press f then R/S (P/R) to leave program mode, and clear a pending prefix by pressing ON.
Type the starting outlay, make it negative with CHS, and store it with g, then PV (CF0).
10000CHSgCF₀PVStore each later flow with g, then PMT (CFj).
3000gCFjPMT4200gCFjPMT6800gCFjPMTEnter the discount rate in i, then press f and PV (NPV).
10ifNPVPV
You should see1,307.29
Tips
- The first flow (today) is not discounted. Leave out the minus sign on the outlay and you will get a very wrong answer.