Tutorial for Users » hp 12c (platinum) - NPV and IRR

Calculating the net present value (NPV) and/or internal rate of return (IRR) is virtually identical to finding the present value of an uneven cash flow stream (see example).

Suppose that you were offered the investment in Example 3 at a cost of $800. What is the NPV? IRR?

To solve this problem we must not only tell the calculator about the annual cash flows, but also the cost (previously, we set the cost to 0 because we just wanted the present value of the cash flows). Generally speaking, you’ll pay for an investment before you can receive its benefits so the cost (initial outlay) is said to occur at time period 0 (i.e., today). To find the NPV or IRR, first clear the cash flow registers and then enter -800 into CF0, then enter the remaining cash flows exactly as before. For the NPV we must supply a discount rate, so enter 12 into i, and then press f and PV. You’ll find that the NPV is $200.17922. Solving for the IRR is done exactly the same way, except that the discount rate is not necessary. This time, you’ll press f and FV to find that the IRR is 19.5382%.

Example: Project X has the following expected after-tax net cash flows. The firm’s cost of capital is 10%. (Note: Clear all previous work.)

Expected Net After-Tax Cash Flows Project X

Year

Cash Flow

0 (initial outlay)

$2,000

1

1,000

2

800

3

600

4

200

The IRR for Project X is:

{2,000} [CHS] [g] [PV]  CF0
{1,000} [g] [PMT]  CFj
{800} [g] [PMT]  CFj
{600} [g] [PMT]  CFj
{200} [g] [PMT]  CFj
[f] [FV] IRR gives the result, 14.48884.

A note on Net Present Value (NPV): For NPV calculations on the examination, we recommend computing the present value of each individual cash flow and adding them together. No need to memorize more calculator functions - you’ve got enough to memorize for the exam! However, for the curious, the keystrokes to calculate NPV are provided below:

The NPV of Project X is:

{2,000} [CHS] [g] [PV] CF0
{1,000} [g] [PMT]  CFj
{800} [g] [PMT]  CFj
{600} [g] [PMT]  CFj
{200} [g] [PMT]  CFj
{10} [i]
[f] [PV] NPV gives the result, $157.63951

Remember: The [PV] is the [WHITe] name of the key. We use this convention because the white keys are easier to read and identify.

Ad Link: Introduction to Financial Math using the HP-12C calculator, Book, Dr. Norman Toy, Paperback


Updated On: 15.07.14

  1. On 01-Aug-2020, Anonymous wrote: 
    A property sold for $360,000 with a down payment of $40,000. The seller financed a mortgage for the balance, with a 20-year term at 5% interest with monthly payments. The market interest rate is 8%. What is the cash equivalent sale price, including the PV of the loan and the down payment?
    Your reply to Anonymous

  2. On 01-Aug-2020, Anonymous wrote: 
    A mortgage for $4,500,000 originated 5 years ago, at 5.00%, with a 25 year amortization and monthly payments. However, there is a balloon payment at the end of Year 10, at which time the entire balance is due. An investor purchases the mortgage at the end of Year 5 for $3,200,000. What is the purchaser’s yield (annual rate, monthly compounding) on this transaction?
    Your reply to Anonymous

  3. On 01-Aug-2020, Anonymous wrote: 
    If the monthly net rent for a warehouse is $3,000 (paid monthly in advance), and the value of the warehouse is expected to be $400,000 at the end of the new 10-year lease, what will an investor pay for the building to achieve a 15% yield (compounded monthly)?
    Your reply to Anonymous

  4. On 12-Jul-2015, Scott wrote: 
    If you enter into a 3-year contract that pays you a lump sum upon execution of $35,000.00 and it costs $14,000 a year to administer the contract, what is the IRR using an HP 12-C and what are the keystrokes?
    Thanks
    Your reply to Scott

  5. On 08-Mar-2013, Robert Phelps wrote: 
    Having trouble NPV 12c
    -42000 cfo (g)
    14000 cfi (f)
    5n
    10 I
    npv (f)
    answer in book = 11,071.01
    I keep getting 29,272 over and over
    Your reply to Robert Phelps
    • On 11-Mar-2013, Peter Tong replied: 
      To get the answer 11,071.01, do not press 5 [N]. Instead press 5 [g] [Nj] and thereafter press [f] [NPV] to get the answer.
      Your reply to Peter Tong

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