Obtaining the Net Present Value (NPV)

Calculating the (NPV), or the Internal Rate of Return (IRR) is about the same to finding the present value of an uneven cash-flow. This is what was covered in Present Value of Uneven Cash-Flow. As you may recall a investment opportunity came your way which was:

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?

Now let’s imagine that you were offered this opportunity at the cost of $800.00.

We need to calculate the (NPV) and the (IRR).

We used 0 for the cost but most times we’ll have to pay to play.

This is our method to solve the original problem:

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.

Because we are using the Texas Instrument BA II Plus, we don’t have to start from scratch we can just change a few entries and get our answers

 Ress (CF) and then input -800 press enter for the CFO.

Press (NPV) the calculator will prompt for this leave it at 12 and press enter and the down arrow.

Then press (CPT)

The NPV is $200.17922

The IRR is found the same way, but this time the discount rate isn’t required. This time press (IRR)and then (CPT). The IRR is 19.5382.

Note: Images on this blog site are from a free source or taken by the author. No image or group of photos is intended to represent the people the author serves. The author does not care about Race (that is a politically correct term that he does not like because we are all of the same Race, the Human Race. He prefers the term ethnicity, color, religion, sex, gender, marital status, disability, genetic information, national origin, source of income, Veteran or military status, ancestry, citizenship, primary language or immigration status.) He is a service provider for all people. We will all rise together when we band together and help one another. Joseph Erwin is a Real Estate Broker, DRE # O2131799, and a CA general contractor # B 696662. He’s a member of the CRMLS and The East Valley Association of Realtors located in the Inland Empire region of Southern California.