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Applications
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If the result is greater than or equal to zero, the venture is deemed to
be profitable, at least to the extent of the discount rate or cost of
capital.
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Known values are the cost of capital (in terms of percent), the amount of the original investment (present value),
and the expected cash flow schedule. The formula uses the constant
storage location, therefore, any value stored there will be destroyed
when the final key (the one that triggers the result) is pressed. Information is entered as follows:
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 1 |
Clear the HP-80 by pressing CLx (CLEAR).
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| 2 |
Enter cost of capital (percent) per period, press i.
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| 3 |
Enter original investment and press CHS to change it to a negative number indicating it is a capital outlay, press PV.
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| 4 |
Enter first period’s cash flow (make it negative by pressing CHS if you’re still putting money out), press PV.
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Press Σ+ to obtain the current net present value (the first cash flow less capital outlay).
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Enter second cash flow, press PV.
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Press Σ+ to obtain the current net present value (the first and second cash flows, less capital outlay).
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Continue steps 6 and 7 until you run out of cash flows.
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Notice the advantage of being able to tell in which period you will recover your investment (if at all)
since, as soon as the display shows a positive number after a given
cash flow, you have recovered your investment on a discounted cash flow
basis.
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Sample Case: You are offered an investment opportunity for $100,000 at a capital cost of 10% after taxes.
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Will this investment be profitable based on the following cash flows?
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Year
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Cash Flow
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1
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$34,000
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2
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$27,500
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3
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$59,700
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4
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$7,800
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Solution
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| | Enter: | | | See Displayed: | | |
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CLx
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| 10 i 100000 CHS PV 34000 PV Σ+ | | | | $ |
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current net present value
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current net present value
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