7: Cash Flow Calculations 101
Table 7-2. The CALC Menu for CFLO Lists
Menu Label
Description
O
Calculates the sum of the cash flows.
t
*
!
Calculates the
internal rate of return
―
the interest
(discount) rate at which the net present value of the
cash flows equals zero.
u
!
Stores the
periodic interest rate
, expressed as a
percentage (sometimes called
cost of capital
,
discount rate
, or
required rate of return
).
v
!
Given
I%
, calculates the net present value
―
the
present value of a series of cash flows.
w
!
Given
I%
, calculates the
net uniform series
―
the
dollar amount of constant, equal cash flows having
a present value equivalent to the net present value.
x
!
Given
I%
, calculates the
net future value
of a series
of cash flows by finding the future value of the net
present value.
*
The calculations for internal rate of return are complex and may take a
relatively long time. To interrupt the calculation, press any key. In certain
cases, the calculator displays a message indicating that the calculation
cannot continue without further information from you, or that there is no
solution. Refer to appendix B for additional information about calculating
IRR%
.
About the Internal Rate of Return (IRR%).
A “conventional investment”
is considered attractive if
IRR%
exceeds the cost of capital. A
conventional investment meets two criteria
―
(1) the sequence of cash
flows changes sign only once, and (2) the sum (
TOTAL
) of the cash flows
is positive.
Remember that the calculator determines a periodic
IRR%
. If the cash
flows occur monthly, then
IRR%
is a monthly value, too. Multiply it by 12
for an annual value.
