Financial Calculations Worksheet Page 17
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3019-4 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.
NPV
• Net present value (
)
NFV
• Net future value (
)
IRR
• Internal rate of return (
)
PBP
• Pay back period (
)
A cash flow diagram like the one shown below helps to visualize the movement of
funds.
CF
CF
7
5
CF
CF
6
CF
3
2
CF
4
CF
1
CF
0
CF
With this graph, the initial investment amount is represented by
. The cash
0
CF
CF
flow one year later is shown by
, two years later by
, and so on.
1
2
Investment appraisal can be used to clearly determine whether an investment is
realizing profits that were originally targeted.
uNPV
CF
CF
CF
CF
1
2
3
n
NPV = CF
+
+
+
+ … +
0
2
3
n
(1+ i)
(1+ i)
(1+ i)
(1+ i)
I
i =
n
: natural number up to 254
100
uNFV
NFV = NPV × (1 + i )
n
uIRR
CF
CF
CF
CF
1
2
3
n
0 = CF
+
+
+
+ … +
0
2
3
n
(1+ i)
(1+ i)
(1+ i)
(1+ i)
× 100. It should be
NPV
IRR
i
In this formula,
= 0, and the value of
is equivalent to
noted, however, that minute fractional values tend to accumulate during the
NPV
subsequent calculations performed automatically by the calculator, so
never
IRR
NPV
actually reaches exactly zero.
becomes more accurate the closer that
approaches to zero.
337
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