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42
Procedure Key operation Display
Enter cash fl ow data.
,
12000
J
DATA SET:CF
000
3000
J
DATA SET:CF
100
5000
>
3
J
DATA SET:CF
200
4000
J
DATA SET:CF
300
Return to the initial dis-
play in NORMAL mode.
s
000
If there is cash fl ow data stored, press
>
.
b
to
clear it.
2. Calculate IRR.
Procedure Key operation Display
Select discounted cash
fl ow analysis, and set all
the variables to default
values.
.
<
.
b
RATE(I/Y)=
000
Calculate IRR (RATE
(I/Y)).
@
RATE(I/Y)=
2314
Answer: The net present value of the cash fl ows equals zero at
an IRR of 23.14%.
Calculating the present value of variable cash
fl ows
Your company has prepared forecasts for the development costs
and operating profi ts of the next generation of your product.
Development costs for each of the next three years (Years 1 to
3) will be $50,000. Manufacturing equipment costing $100,000
will be purchased at the end of Year 3. Annual profi ts for the
fi ve-year product life (from Year 4 to Year 8) are projected to be
$80,000. The salvage value of the manufacturing equipment at
the end of Year 8 is $20,000. Given a 12% discount rate, should
your company proceed with the product development?
*
1
2
3FinancialFunctionsCurrent.indd423FinancialFunctionsCurrent.indd42 06.7.108:38:37PM06.7.108:38:37PM
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