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58 Section 4: Additional Financial Functions
File name: hp 12c_user's guide_English_HDPMBF12E44 Page: 58 of 209
Printered Date: 2005/7/29 Dimension: 14.8 cm x 21 cm
z If NPV is positive, the financial value of the investor’s assets would be
increased: the investment is financially attractive.
z If NPV is zero, the financial value of the investor’s assets would not change:
the investor is indifferent toward the investment.
z If NPV is negative, the financial value of the investor’s assets would be
decreased: the investment is not financially attractive.
A comparison of the NPV’s of alternative investment possibilities indicates which of
them is most desirable: the greater the NPV, the greater the increase in the
financial value of the investor’s assets.
IRR is the rate of return at which the discounted future cash flows equal the initial
cash outlay: IRR is the discount rate at which NPV is zero. The value of IRR relative
to the present value discount rate also indicates the result of the investment:
z If IRR is greater than the desired rate of return, the investment is financially
attractive.
z If IRR is equal to the desired rate of return, the investor is indifferent toward
the investment.
z If IRR is less than the desired rate of return, the investment is not financially
attractive.
Calculating Net Present Value (NPV)
Calculating NPV for Ungrouped Cash Flows.
If there are no equal
consecutive cash flows, use the procedure described (and then summarized) below.
With this procedure, NPV (and IRR) problems involving up to 20 cash flows (in
addition to the initial investment CF
0
) can be solved. If two or more consecutive
cash flows are equal — for example, if the cash flows in periods three and four
are both $8,500 — you can solve problems involving more than 20 cash flows, or
you can minimize the number of storage registers required for problems involving
less than 20 cash flows, by using the procedure described next (under Calculating
NPV for Grouped Cash Flows, page 61).
The amount of the initial investment (CF
0
) is entered into the calculator using the
J
key. Pressing
gJ
stores CF
0
in storage register R
0
and also stores the
number 0 in the n register.