Solution 11241: Computing Net Present Value (NPV) and Internal Rate of Return (IRR) Using the BA II PLUS™ and the BA II PLUS™ PROFESSIONAL.
How do I calculate net present value (NPV) and internal rate of return (IRR) using the BA II PLUS or the BA II PLUS PROFESSIONAL?
Five keys are used for performing cash-flow calculations: [CF], [NPV], [IRR], [↑] , [↓] key
• [CF] is used for entering cash flow data.
• Press [↑] and [↓] keys to
move through each set of variables.
• [NPV] is used for computing net present
value.
Please Note: NPV (net present value) is the sum of the present values for the cash inflows (cash received) and outflows (cash paid out).
• [IRR] is used for computing internal rate of return.
Please Note: IRR (internal rate of return) is the interest rate at which the net present value of the cash flows is equal to zero.
A positive value for NPV indicates a profitable investment; a negative value for NPV indicates that money was lost in the investment.
Example: A company plans to pay $7,000 for a new machine. The company would like a 10% annual return on its investment. Over the next six years, the company expects to receive the annual cash flows shown below:
Initial cost for machine - $7000
Year 1 - $3000
Year 2 - $5000
Year
3 - $5000
Year 4 - $5000
Year 5 - $5000
Year 6 - $4000
1) Press [CF] to go to the Cash Flow Worksheet.
2) Press [2nd] [CE|C] to
clear the worksheet.
3) Press [7] [0] [0] [0] [+|-].
4) Press the [ENTER]
[↓].
5) Press [3] [0] [0] [0].
6) Press [ENTER] [↓].
7) Press [↓] since
3000 only appears once in the cash flows.
8) Press [5] [0] [0]
[0].
9) Press [ENTER] [↓].
10) Press [4] [ENTER] since 5000 appears 4
times (from Year 2 through Year 5).
11) Press [↓].
12) Press [4] [0] [0]
[0].
13) Press [Enter].
Computing Net Present Value:
Example: Compute the net present value using an interest rate of 10%.
1) Press [NPV] to go to the Net Present Value worksheet.
2) Press [1]
[0] [ENTER] [↓].
3) Press [CPT] to compute NPV which should display as
12,393.65.
Computing Internal Rate of Return:
1) Use the example provided in the earlier steps.
2) Press [IRR] to go to
the Internal Rate of Return worksheet.
3) Press [CPT] to compute IRR which
should display as 55.63.
Please Note: The maximum amount of cash flows that can be entered is 32. If there are more than 32 cash flows in the cash flow worksheet, the IRR computed will be incorrect.
Please see the BAII Plus family guidebooks for additional information.