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Hewlett-Packard 10B Tutorial
Page 10
Example 3: The Rate of Return Offered by an Investment (IRR)
Assume that we invest $1,000 now (t = 0) and then expect to receive an uneven set of cash flows. Here
is the CF time line:
What rate of return will we earn? Enter the following:
CLEAR ALL
+/-
1000
CF
300
j
CF
400
j
CF
200
j
CF
600
j
IRR/YR
You can also determine the NPV of the investment. Leave data entered and then enter the opportunity cost
interest rate, say 8 percent. To find NPV press
I/YR
8
NPV
The NPV of $220.50 is displayed. Thus, the PV of the cash inflows exceeds the cost of the investment
by $220.50.
1
If a negative CF occurs at the end of a project's life, then the HP may give an error message, indicating that
there are two IRRs. Enter data, then enter 10
percentage, such as 100
locate the two IRRs.
0
1
/))))))))3))))))))3))))))))3))))))))1
-1000
300
CF
j
(Hold down CF
key to be sure you entered CF
j
= 16.71%
STO
IRR/YR
to find other IRR. You might have to experiment with "guesses" to
1
2
3
400
200
600
STO
IRR/YR
to get the first IRR. Then enter a large
4
.)
2
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