![]() Example 4.2 - Modified Internal Rate of Return This is a handy tip to remember in case you ever mis-enter a cash flow. You would proceed from there exactly as before. If you had used the up arrow key (two keys above the Shift key, not one of the menu keys), you could have scrolled back to cash flow 0 and entered -800. Instead, when you returned to the CFLO menu it was prompting you to enter cash flow 6. Note: There was no need to actually re-enter all of those cash flows. This time, you'll press IRR to find that the IRR is 19.5382%. Solving for the IRR is done exactly the same way, except that the discount rate is not necessary. When the cash flows are entered, press Exit and go to the CFLO menu, then enter 12 into I% and then press NPV. To find the NPV or IRR, first clear the cash flow registers and then enter -800 into FLOW (0), then enter the remaining cash flows exactly as before. 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 solve this problem we must not only tell the calculator about the annual cash flows, but also the cost (previously, we set the cost to 0 because we just wanted the present value of the cash flows). Suppose that you were offered the investment in Example 3 at a cost of $800. Example 4 - Net Present Value (NPV)Ĭalculating 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, except that we also need to supply the initial outlay (cost) of the investment. Pretty easy, huh? Now press Exit twice and return to the CFLO menu for the next example. On the 17BII, however, all we need to do is to press NFV (net future value) in the CALC menu to see that the future value is $1,762.65754. On most calculators, there is no key to do this. Now suppose that we wanted to find the future value of these cash flows instead of the present value. Example 3.1 - Future Value of Uneven Cash Flows Note that you can easily change the interest rate by simply re-entering it and then solving again for the NPV. Finally, press NPV to find that the present value is $1,000.17922. On the CALC menu, we first need to enter 12 into I%. Once all of the cash flows are entered, press Exit to get to another menu. All you need to do is to enter the cash flows from the above list when prompted. For now, make sure each #TIMES prompt is set to 1 as you enter your cash flows. The calculator will prompt you for the cash flows for each period, and the frequency of those cash flows. In this case we need to press Shift Input, and then choose YES when prompted. Again, we must clear the cash flow registers first. All we need to do is enter the cash flows exactly as shown in the table. We could solve this problem by finding the present value of each of these cash flows individually and then summing the results. How much would you be willing to pay for this investment if your required rate of return is 12% per year? Suppose that you are offered an investment which will pay the following cash flows at the end of each of the next five years: Period Press the Exit key to get back to the FIN menu, and then choose the CFLO (cash flow) menu. In addition to the previously mentioned financial keys, the 17BII also has a menu to handle a series of uneven cash flows. ![]() Example 3 - Present Value of Uneven Cash Flows We will also see how to calculate net present value (NPV), internal rate of return (IRR), and the modified internal rate of return (MIRR). In this section we will take a look at how to use the HP 17BII to calculate the present and future values of uneven cash flow streams. In the previous section we looked at the basic time value of money keys and how to use them to calculate present and future value of lump sums and annuities. Are you a student? Did you know that Amazon is offering 6 months of Amazon Prime - free two-day shipping, free movies, and other benefits - to students? Click here to learn more
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