The Present Value of Uneven Cash Flow

To be able to work these problems I must first introduce you to another key on the Texas Instrument BA II Plus calculator. The key is on the second row and is the second one from the left. It is CF, the cash flow key. It’s used to handle uneven cash flows. When you’ve solved a problem be sure to exit this mode by pressing 2^nd/ CPT this makes the second key the quit key.

Let’s say you have the opportunity for an investment which offers the following cash flows at the end of the next 5 years:

Year	Cash Flow
0	0
1	100
2	200
3	300
4	400
5	500

If you required rate of return is 12%, what would you be willing to pay for this investment?

You could find each individual present value and then add them together but this could be tiresome when the year or pay periods are many. To begin we need to empty the cash-flow register. To do this press CF/then 2^nd/ then the CE/C key in the bottom left corner.

Our calculator will ask us the default frequency of each cash-flow. Let’s leave it 1.

Press CF then ,0 then enter then the down arrow top row next to the on/off key,

Press 100, Enter, down arrow twice

Press 200, Enter, down arrow twice

Press 300. Enter, Down arrow twice

Press 400, Enter, Down arrow twice

Press 500, Enter, Down arrow twice

After these are entered press the NPV key the calculator ask for I (interest rate)

This is 12 then press enter

Then press the down arrow

NVP should be 0.00 In order to get the present value of the cash flows, press CPT, the present value is $1,000.17922.

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