HP 10B - Manual (Page 80)

NPV and IRR/YR: Discounting Cash Flows
Chapter 4 demonstrates the use of cash flow diagrams to clarify financial
problems. This section describes discounted cash flows. The NPViund
¡RR/YR functions arc frequently referred to as discoutUed cash flow
functions.
When a cash flow is discounted, you calculate its present value. When
multiple cash flows arc discounted, you calculate the present values and
add them together.
The net present value {NPV) function finds the present value of a series
of cash flows. The annual nominal interest rate must be known to
calculate NPV,
The internal rale of return {IRR/YR) function calculates the annual
nominal interest rate that is required to give a net present value of zero.
The utility of these two financial tools becomes dear after working a few
examples. The next two sections describe organizing and entering your
cash flows. Examples of NPV and IRR/YR calculations follow.
Organizing Cash Flows
The cash flow scries is organized into an initial cash flow (CF 0 ) and
succeeding c^ 5 /t fhwff’oups (up to 14 cash flows). CF 0 occurs at the
beginning of the first period. A cash flow group consists of a cash flow
amount and the number of times it repeats.
For example, in the following cash flow diagram, the initial cash flow is
-$11,000. The next group of cash fiows consists of six flows of zero each,
followed by a group of three $1,000 cash flows. The final group consists of
one $ 10,000 cash flow.
6: Cash Flow CalcutaUona 77