All right now the last function in your calculator I think is a way to deal with cash flows that aren't the same every period.
It's not an annuity because the amounts change and what we are going to find is the present value of a stream of cash flows and the interest rate given in a stream of cash flows and we'll talk about in class what NPV net present value and IRR internal rate of return represent and what they measure but for the purpose of the video it's just how to get the calculator to figure it out.
Out of the problem but you can't see on the screen we have the following cash flows where you're here off to the left and it would be cash flow 0 1 2 3 4 5 6 all the way through cash flow 7 and again I'm not going to worry about the numbers right now just how to put them in but it's very simple on the HP you have this button which is just north of dead-center CFJ and that is the cash flow for time period J now each time you push that button whatever is in the display will be entered as the next cash flow note we'll just go into order.
First for example each time you push it when I push it the first time it's going to say cash flow 0 and whatever is in there is going to go in the next time I push it it's going to say cash flow 1 and cash flow 2 and cash flow 3 and.
The trick is you just like with the time buy you have to have the number in the calculator first now I'm going to go ahead and clear that because I don't want to start with whatever cash flow 5.
Everything's clear and we're going to start with cash flow 0.
Whatever you put in there first you type the cash flow 0 first when you push the FJ it's going to dump it in in problems where there is no cash flow 0 specifically when we do the stock pricing there is no cash flow 0.
You would always enter 0 and then push the FJ to get cash flow 0 out of the way but in this problem it is a negative 1.4 million.
Kind of just like the regular time value you're going to start with the number 14:1 41-point 1,400,000 again make it negative with this one and then push cfj and. This is cash flow 0 and then it's gone and then we're at 200,000.
We're just going to type in 200 thousand CFJ and then 240 thousand cfj 288 CFJ and that should be casual 3 kind of check we're good I have no idea why I pick such a long problem but I did 345 600 cfj 414 720 which was cashflow 5 CFJ 497 664 cash flow 6 and finally 300,000 for cash flow 7 CFJ oK you've done all the hard stuff everything's in the calculator once the cash flows are in it's very simple to compute net present value you're going to put in a rate and it goes in just like the regular time value.
In this problem it is 12%.
12 is the interest rate I /yr and you're going to compute net present value you'll see it underneath the price key.
Do the orange shift and NPV and there you get at 17 685 82. All right, now to compute internal rate of return you're already there once the numbers are all in the next button if you see the NPV is here if you look to the left in the middle under the cost function is IRR per year and that is it and you just do shift IRR and you get twelve point three five percent that's it now the IRR is a percentage the NPV is a dollar number but those are the numbers and that's how the calculations are made just be careful make sure you start with cash flow 0 it may be zero but if there is one it'll probably be negative if you don't make it negative you're not going to get an IRR it will still compute NPV but when you do IRR you will get an error.
If you're entering cash flow zero it's going to have to be negative for anything that will do and in most cases that will be the situation well that's it you can play around with it and I think we are done.