INTERNAL RATE OF RETURN (IRR)

1. Formula:

$2.8m

$2.8m

$2.8m

$2.8m

$2.8m

$2.8m

$2.8m

$2.8m

CF1

CF2

CF3

CF4

CF5

CF6

CF7

CF8

CF1 CF2 CF3 CFi O = CF0 + ___ + ____ + ____ + + __ (1+i) (1+i) (1+i) (1+i)j 2. Modes: 4 key,

CF0 -$17million

OPERATION
MODE 4 MODE
+

DISPLAY
SHIFT AC 0

After pressing the MODE key and perform operations in the CF mode. 3. Inputting Data

17 2.8

/8

CFj Nj

-17.00 8.00 6.57(%) 0.00

CFi IRR NPV

HOW TO USE A FINANCIAL CALCULATOR

THIS BROCHURE WILL EXPLAIN SOME OF THE BASIC CALCULATIONS WHICH CAN BE COMPUTEDED ON THE CASIO FC-100 FINANCIAL CALCULATOR.

3.1. Before inputting data, you need to clear the memories. To do this, press the SHIFT AC and keys.
CFj Nj keys are used 3.2. The and to input corresponding data.

3.2. If successive cash flows contain the same amounts: the Nj key can be used in place of the CFj key. In these cases Nj the number must be a natural number, and it must be input immediately CFj after the Example: 3200 4.
CFj

If you need any further assistance with the use of a financial calculator, please make an appointment with one of the Finance Academic Mentors in the Student Learning Centre.

Nj

Ricky Liu: Academic Mentor Student Learning Centre Massey University, Auckland

IRR Calculation

2004

Results can be output by pressing the IRR key. (It may take a while for the data to be output). Example: Company XYZ is planning to construct a new plant. The data listed below has been gathered regarding the project. What is the annual IRR for this investment plan (to the nearest two decimal places)?

HELPING YOU GET THE MOST OUT OF YOUR TIME AT UNIVERSITY

FINANCIAL FUNCTION KEYS

These are used to: Calculate the number of payments in a loan or ordinary annuity Determine interest rates on loans and rates of return on investments Solve for the amount of payments on loans or investment plans, and Determine present and future values of cash payments or ordinary annuities.
FUNCTION KEY N I PV PMT FV USE NUMBER OF PERIODS PERIODIC INTEREST RATE PRESENT VALUE PERIODIC PAYMENTS FUTURE VALUE

COMP COMP COMP COMP COMP

N PMT PV FV i%

Terms Payment Amount Principal Total of Principal & Interest Interest Rate

3.4. If successive cash flows contain the same amounts, the Nj number must be a natural number, and it must be input Immediately after the CFj
CFj 4 Nj Example: 3200 ($3200 of revenue for 4 successive years)

4.

NPV Calculation Results can be output by pressing the Key.

NPV

Example: i% = ? PV = -800 (principal) FV = 1,000 (total of principal and interest) N = 10 (term) PMT = 50 i% = 8%

NET PRESENT VALUE (NPV)

1. Formula:

Example: You are thinking of purchasing a condominium. According to your plan, you can rent the condo to students for 10 years, after which you will sell it, hoping to see a yield of 8% per annum. If the purchase price is $170,000, you charge $1,000 in rent per month ($12,000 per annum), and assuming you can sell the condo in 10 years for $220,000, will you be able to reach your profit target?
$12,000 $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 $12,00 $12,000 $12,000

Each of the five financial function keys controls one of the five financial registers of the calculator, and serves two purposes: 1. 2. To enter the value of a financial parameter into the calculator To command the calculator to solve for an unknown parameter.

CF1 CF2 CF3 CFi NPV = CFo + + + + + (1+i) (1+i)2 (1+i)3 (1+i)i 2. Modes: After pressing the MODE key, find the key for cash flow mode. On the Casio FC-100 calculator, Press 4 the key. 3. Inputting Data

CF1

CF2

CF3

CF4

CF5

CF6

CF7

CF8

CF9

CF10

1 CF0 -$170,000

10

$220,00 + $12,000

OPERATION
MODE 170,000 12,000 12,000 + 8 4
+

DISPLAY
Ac 0 -170000 9
Nj CFj

Examples 1. DATA INPUT

Pressing N i% PMT PV or FV

SHIFT
CFj

Inputs the currently displayed value. Input can be performed in any sequence desired. only N For annual term, multiplies by 1/12 or 12 before input. 2. CALCULATION RESULT INPUT the following keys produce the corresponding results on the display when pressed after the COMP Key:

3.1. Before inputting data, it is necessary to press SHIFT the and AC keys to clear CFj and Nj memories. i% the
i% , CFj and Nj keys 3.2. The are used to input corresponding data.

/CFj 220,000

9 232000 8 12423.54417

= i%

NPV

3.3. Each time the CFj Key is pressed, the CF number is incremental from CFo to CF14 (up to 15 sets of CFi inputs can be made).