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Additional Financial Functions
Additional Financial Functions
Additional Financial Functions
Additional Financial Functions
Discounted Cash Flow Analysis: NPV and
Discounted Cash Flow Analysis:
Discounted Cash Flow Analysis:
Discounted Cash Flow Analysis:
The hp 12c provides functions for the two most widely-used methods of discounted
cash flow analysis: l (
functions enable you to analyze financial problems involving cash flows (money
paid out or received) occurring at regular intervals. As in compound interest
calculations, the interval between cash flows can be any time period; however, the
amounts of these cash flows need not be equal.
To understand how to use l and L, let's consider the cash flow diagram for
an investment that requires an initial cash outlay (
CF
(
) at the end of the first year, and so on up to the final cash flow (
1
end of the sixth year. In the following diagram, the initial investment is denoted by
CF
, and is depicted as an arrow pointing down from the time line since it is cash
0
paid out. Cash flows
they represent projected cash flow losses.
NPV
is calculated by adding the initial investment (represented as a
flow) to the present value of the anticipated future cash flows. The interest rate,
will be referred to in this discussion of
NPV
value of
indicates the result of the investment:
NPV
If
is positive, the financial value of the investor's assets would be
increased: the investment is financially attractive.
*
Other terms are sometimes used to refer to the rate of return. These include:
return, minimally acceptable rate of return
Section 4
) and L (
net present value
CF
CF
and
also point down from the time line, because
1
4
NPV
cost of capital
, and
57
57
57
57
NPV and IRR
NPV and
NPV and
IRR
IRR
IRR
internal rate of return
CF
) and generates a cash flow
0
IRR
rate of return
and
as the
required rate of
.
). These
CF
) at the
6
negative
cash
i
,
.
The
*
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