HP 113394 User Guide - Page 73

Section 4: Additional Financial Functions 73 z If NPV is positive, the financial value of the investor's assets would be increased: the investment is financially attractive. z If NPV is zero, the financial value of the investor's assets would not change: the investor is indifferent toward the investment. z If NPV is negative, the financial value of the investor's assets would be decreased: the investment is not financially attractive. A comparison of the NPV's of alternative investment possibilities indicates which of them is most desirable: the greater the NPV, the greater the increase in the financial value of the investor's assets. IRR is the rate of return at which the discounted future cash flows equal the initial cash outlay: IRR is the discount rate at which NPV is zero. The value of IRR relative to the present value discount rate also indicates the result of the investment: z If IRR is greater than the desired rate of return, the investment is financially attractive. z If IRR is equal to the desired rate of return, the investor is indifferent toward the investment. z If IRR is less than the desired rate of return, the investment is not financially attractive. Calculating Net Present Value (NPV) Calculating NPV for Ungrouped Cash Flows. If there are no equal consecutive cash flows, use the procedure described (and then summarized) below. With this procedure, NPV (and IRR) problems involving up to 80 cash flows (in addition to the initial investment CF0) can be solved. If two or more consecutive cash flows are equal - for example, if the cash flows in periods three and four are both $8,500 - you can solve problems involving more than 80 cash flows, or you can minimize the number of storage registers required for problems involving less than 80 cash flows, by using the procedure described next (under Calculating NPV for Grouped Cash Flows, page 75). The amount of gJ keys. the initial investment (CF0) is entered into the calculator using the Each cash flow (CF1, CF2, etc.) is designated CFj, where j takes on values from 1 up to the number of the final cash flow. The amount of a cash flow is entered using the gK keys. Each time gK is pressed, the amount in the display is stored in the next available storage register, and the number in the n register is increased by 1. This register therefore counts how many cash flow amounts (in addition to the initial investment CF0) have been entered. Note: When entering cash flow amounts - including the initial investment CF0 - remember to observe the cash flow sign convention by pressing Þ after keying in a negative cash flow. File name: hp 12c pt_user's guide_English_HDPMF123E27 Page: 73 of 275 Printed Date: 2005/8/1 Dimension: 14.8 cm x 21 cm