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337
19-4 Investment Appraisal
This calculator uses the discounted cash flow (DCF) method to perform invest-
ment appraisal by totalling cash flow for a fixed period. This calculator can perform
the following four types of investment appraisal.
•Net present value (NPV)
•Net future value (NFV)
•Internal rate of return (IRR)
•Pay back period (PBP)
A cash flow diagram like the one shown below helps to visualize the movement of
funds.
CF0
CF1
CF2
CF3
CF4
CF5
CF6
CF7
With this graph, the initial investment amount is represented by CF0. The cash
flow one year later is shown by CF1, two years later by CF2, and so on.
Investment appraisal can be used to clearly determine whether an investment is
realizing profits that were originally targeted.
uNPV
NPV = CF0 + + + + … +
(1+ i)
CF
1
(1+ i)
2
CF2
(1+ i)
3
CF3
(1+ i)
n
CFn
n: natural number up to 254
uNFV
NFV = NPV × (1 + i )
n
uIRR
0 = CF
0
+ + + + … +
(1+ i)
CF
1
(1+ i)
2
CF
2
(1+ i)
3
CF
3
(1+ i)
n
CF
n
In this formula, NPV = 0, and the value of IRR is equivalent to i × 100. It should be
noted, however, that minute fractional values tend to accumulate during the
subsequent calculations performed automatically by the calculator, so NPV never
actually reaches exactly zero. IRR becomes more accurate the closer that NPV
approaches to zero.
i =
100
I
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