Sharp EL733A EL-733A Operation Manual - Page 54

t2ndFI

PRCLI

FMI

I+/

-I

0

3

E

Ell

RMI

Result:

505'036.82

But

the

lease

value

for

the

equipment

was

only

$500

1

000.

The

demand

for

the

payments

up

front

has

the

same

effect

as

increasing

the

price

$5'036.82

and

increasing

the

interest

rate

to

10.5%

APR

compounded

quarterly.

Another

way

to

look

at

it

is

that

it

has

the

same

effect

as

a

more

drastic

increase

in

rates

(the

calculation

of

this

rate

is

shown

on

page

115).

So,

unless

they

lower

the

price

by

over

$5

,

000.00,

this

deal

does

not

meet

your

demand

for

a

10.5%

maximum

interest

rate.

101

Discounted

Cash

-Flow

Analysis

The

previous

example

leads

quite

well

into

the

topic

of

this

section.

The

two

functions

INN

and

IRRI

on

the

EL

-733A

depend

(numerically)

on

the

fact

that

cash

-flows

can

be

moved

up

and

down

a

cash

-flow

schedule.

The

process

that

you

just

used

to

slide

back

that

one

cash

-flow

is

similar

to

the

calculating

process

that

these

functions

depend

upon.

In

discounted

cash

-flow

analysis,

the

parts

of

the

cash

-flow

schedule

take

on

new

meanings.

In

TVM

analysis,

you

had

n

(the

number

of

periods),

i

(the

periodic

interest

rate),

PV

(the

cash

-flow

at

the

beginning

of

the

fi

rst

period),

FV

(the

cash

-flow

at

the

end

of

the

last

period),

and

PMT

(a

regular

stream

of

level

cash

-flows

from

the

PV

to

the

FV),

allowing

you

to

describe

many

fi

nancial

situations

to

your

EL

-733A.

But

a

regular,

level

stream

of

payments

can

be

a

big

restriction,

and,

depending

on

how

creative

your

fi

eld

of

fi

nance

is,

it

may

be

necessary

to

generalize

your

perception

of

the

cash

-flow

schedule

to

incorporate

the

exciting

capabilities

of

discounted

cash

-flow

analysis.

With

discounted

cash

-flow

analysis,

you

need

to

be

able

to

describe

any

cash

-flow

schedule

using

just

two

functions:

2nd

Ni

:

The

number

of

cash

-flows

in

cash

-flow

group

i.

CFi

:

The

value

of

the

cash

-flows

in

cash

-flow

group

i.

You

need

to

throw

out

the

TVM

values

of

n,

PV,

FV,

and

PMT,

and

think

in

terms

of

cash

-flow

groups.

Every

cash

-flow

schedule

is

made

up

of

connected

groups

of

cash

-flows.

These

groups

are

characterized

by

the

value

of

each

cash

-flow

making

up

the

group

and

the

number

of

cash

-flows

in

the

group.

A

cash

-flow

group

could

consist

of

ten,

$100

cash

-flows;

fi

fty,

$10'000

cash

-flows;

or

up

to

ninety-nine

cash

-flows

of

the

same

amount

all

in

a

row.

105

Sharp EL733A EL-733A Operation Manual - Page 54

Discounted, Analysis

Page 54 highlights