Sharp EL-738 EL-738 Operation Manual - Page 43

Calculating the present value of variable cash, flows - irr

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Procedure Enter cash flow data. Key operation , 12000 J 3000 J 5000 > 3 J 4000 J Return to the initial dis- s play in NORMAL mode. Display DATA SET:CF 000 DATA SET:CF 100 DATA SET:CF 200 DATA SET:CF 300 000 *1 If there is cash flow data stored, press > . b to clear it. 2. Calculate IRR. Procedure Key operation Select discounted cash . < . b flow analysis, and set all the variables to default values. Calculate IRR (RATE @ (I/Y)). Display RATE(I/Y)= 000 RATE(I/Y)= 2314 Answer: The net present value of the cash flows equals zero at an IRR of 23.14%. 2 Calculating the present value of variable cash flows Your company has prepared forecasts for the development costs and operating profits of the next generation of your product. Development costs for each of the next three years (Years 1 to 3) will be $50,000. Manufacturing equipment costing $100,000 will be purchased at the end of Year 3. Annual profits for the five-year product life (from Year 4 to Year 8) are projected to be $80,000. The salvage value of the manufacturing equipment at the end of Year 8 is $20,000. Given a 12% discount rate, should your company proceed with the product development? 42

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42
Procedure
Key operation
Display
Enter cash flow data.
,
12000
J
DATA
SET:CF
000
3000
J
DATA
SET:CF
100
5000
>
3
J
DATA
SET:CF
200
4000
J
DATA
SET:CF
300
Return to the initial dis-
play in NORMAL mode.
s
000
If there is cash flow data stored, press
>
.
b
to
clear it.
2.
Calculate IRR.
Procedure
Key operation
Display
Select discounted cash
flow analysis, and set all
the variables to default
values.
.
<
.
b
RATE(I/Y)=
000
Calculate IRR (RATE
(I/Y)).
@
RATE(I/Y)=
2314
Answer:
The net present value of the cash flows equals zero at
an IRR of 23.14%.
Calculating the present value of variable cash
flows
Your company has prepared forecasts for the development costs
and operating profits of the next generation of your product.
Development costs for each of the next three years (Years 1 to
3) will be $50,000. Manufacturing equipment costing $100,000
will be purchased at the end of Year 3. Annual profits for the
five-year product life (from Year 4 to Year 8) are projected to be
$80,000. The salvage value of the manufacturing equipment at
the end of Year 8 is $20,000. Given a 12% discount rate, should
your company proceed with the product development?
*
1
2