Calculator, HP 10 BII, NPV and IRR

Finance Calculator
HP 10BII

NPV and IRR: Using the Cash Flow Register.

4 KEYS:

CFj: used to enter even or uneven cashflows. (The location on calculator is: third row third column)

Orange key, Nj: This is were the frequency of the cashflows will be entered, for example if a cashflow occurs twice in a row, you would enter 2, orange key, Nj. (The location on calculator is: third row third column below CFj)

Orange key, NPV: The NPV key is used to compute the net present value of a stream of cashflows. After the stream has been inputed, an interest rate must be entered into the I/YR key first to discount the cashflow. Once all the factors are present, the NPV can be computed. (The location on calculator is: second row fourth column below the PRC key)

Orange key, IRR/YR: This button is used to compute the internal rate of return. This being the rate at which the NPV equals zero. (The location on calculator is: second row third column below the CST key)

Finding the NPV and the IRR of a stream of uneven cashflows.

Beginning with a cash outflow (investment) of $400, a project will result in 4 inflows of unequal amounts, spaced evenly, of 100, 200, 200, and 300 dollars. These cashflows will occur on a yearly basis.

Begin by clearing the register: Orange key, C ALL.
Enter 1, orange key, P/Y to set the calculator to 1 period per year
400+/-, CFj (The screen should read CF 0 while the CFj button is depressed)
100, CFj
200, CFj
2, orange key, Nj (sets the frequency of the $200 payment at 2)
300, CFj

Now to obtain the answer, press orange key, IRR/YR and the answer should be 28.9. To calculate the NPV of this stream of cashflows, enter 10, I/YR for the discount rate, then orange key, NPV and 211.365 should appear as the Net Present Value of the stream.

Last Updated on 1 May 2002, e-mail any comments to: robert.balik@wmich.edu