Investment analysis

The Cash flow form can be used to analyze investments that involve uneven cash flows using the following functions:

• IRR: Internal Rate of Return- the interest rate at which the net present value of the cash flows is 0. For 'conventional' investments the investment is attractive if IRR is positive.

• NPV: Net Present Value- the present value of a series of cash flows plus the initial investment cost, calculated for a specific interest rate.

• NFV: Net Future value - the future value of a series of cash flows, calculated using the NPV.

• NUS: Net Uniform Series - the amount that is equivalent to the series of cash flows having a PV equivalent to the NPV.

• TOTAL: Total of the cash flows.

To perform cash flow calculations

• Verify/set the number of Payments per year (usually set to 1).

• Verify/set Annual interest rate.

• Enter the cash flow entries as outlined below. Payments you make are negative, money you receive is positive.

• Evaluate IRR, NPV, NFV, NUS and TOTAL by tapping their respective buttons.

Entering the initial cash flow

• Enter the initial amount into the Amount field. This value must be negative.

• Enter 1 into the N field.

• Tap the Insert button.

Entering subsequent cash flows

• Enter the cash flow amount into the Amount field.

• If this value occurs multiple times enter the number of occurrences into the N field.

• Tap the Insert button. Repeat these steps for remaining cash flows.

Conventional investment criteria:

• Initial cash flow is negative

• Some cash flows are positive

• Cash flow sequence changes sign only once

• The sum (TOTAL) of the cash flows is positive.

Example: To calculate the yearly IRR for an investment in a new factory with the following data: Initial Investment: 17 million; Useful Life:8 years;Yearly factory revenues: 2.8 million

1. Enter 1 into the Payments per year field

2. Enter -17 into the Amount field and press the Tab key

3. Enter 1 into the N field and press the Tab key.

4. Tap the Insert button (or press the return key)

5. Enter 2.8 into the Amount field and press the Tab key

6. Enter 8 into the N field and press the Tab key.

7. Tap the IRR button

8. 6.57 will be displayed on the lower line of the display

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