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Calculating IRR, NPV, and NFV for Annual Cash Flows
A real estate investor wishes to purchase/finance a piece of property
for $225,000. He’d like a return of 9% and expects to sell it after five
years for $275,000. He expects the annual cash flows below. Find
the IRR, NPV and NFV, and determine whether this investment is
desirable.
Note: since payments are expected to be received annually, you will need to set your
Payments per Year to 1.
Annual Cash Flow
Year 1
$16,000
Year 2
$16,600
Year 3
$16,900
Year 4
$17,200
Year 5
$275,000
STEPS
KEYSTROKES
DISPLAY
Clear cash flow register
s 6
“CF Cleared” 0.00
Set payments per year
to one
1 s ÷
1.00
Enter initial investment (as a negative entry
indicating a cash outlay)
2 2 5 ) s – c
C-0 -225,000.00
Enter 1st cash flow value
1 6 ) c
C-1 16,000.00
Enter 2nd cash flow
1 6 6 0 0 c
C-2 16,600.00
Enter 3rd cash flow
1 6 9 0 0 c
C-3 16,900.00
Enter 4th cash flow
1 7 2 0 0 c
C-4 17,200.00
Enter 5th (final) cash flow
2 7 5 ) c
C-5 275,000.00
Find the IRR
R
“run” 9.83%
Enter the desired rate of return
and calculate NPV
9 s R
“run” 7,616.73
Find the NFV
R
11,719.29
Re-display the desired
rate of return
R
9.00%
Clear registers*
s x
“All Cleared” 0.00
*This will clear Cash Flows and reset payments per year to 12 (i.e. monthly) for per-
forming the other examples in this guide.
Analysis: This investment would provide an internal rate of
return greater than the desired rate of return, making this a
positive investment.
