HP 12c financial calculator Manuale Utente

 

File name: hp 12c_user's guide_English_HDPMBF12E44 

Page: 57 of 209   

Printered Date: 2005/7/29   

Dimension: 14.8 cm x 21 cm

 

Section 4 

The hp 12c provides functions for the two most widely-used methods of discounted 
cash flow analysis: l (net present value) and L (internal rate of return). These 
functions enable you to analyze financial problems involving cash flows (money 
paid out or received) occurring at regular intervals. As in compound interest 
calculations, the interval between cash flows can be any time period; however, the 
amounts of these cash flows need not be equal. 

To understand how to use l and L, let’s consider the cash flow diagram for 
an investment that requires an initial cash outlay (CF

0

) and generates a cash flow 

(CF

1

) at the end of the first year, and so on up to the final cash flow (CF

6

) at the 

end of the sixth year. In the following diagram, the initial investment is denoted by 
CF

0

, and is depicted as an arrow pointing down from the time line since it is cash 

paid out. Cash flows CF

1

 and CF

4

 also point down from the time line, because they 

represent projected cash flow losses. 

 

NPV is calculated by adding the initial investment (represented as a negative cash 
flow) to the present value of the anticipated future cash flows. The interest rate, i, 
will be referred to in this discussion of NPV and IRR as the rate of return.* The 
value of NPV indicates the result of the investment: 

                                                 

*

 Other terms are sometimes used to refer to the rate of return. These include: required rate of 

return, minimally acceptable rate of return, and cost of capital.