Calculated Industries 3430 - Calculating IRR, NPV, and NFV for Annual Cash Flows

78 — Q
UALIFIER PLUS
®
III
FX
Calculating IRR, NPV, and NFV for Annual Cash Flows
A real estate investor wishes to purchase/finance a piece of property
for $225,000. He’d like a return of 9% and expects to sell it after five
years for $275,000. He expects the annual cash flows below. Find
the IRR, NPV and NFV, and determine whether this investment is
desirable.
Note: since payments are expected to be received annually, you will need to set your
Payments per Year to 1.
Annual Cash Flow
Year 1 $16,000
Year 2 $16,600
Year 3 $16,900
Year 4 $17,200
Year 5 $275,000
STEPS KEYSTROKES DISPLAY
Clear cash flow register s 6 “CF Cleared” 0.00
Set payments per year
to one 1 s ÷ 1.00
Enter initial investment (as a negative entry
indicating a Cash outlay) 2 2 5 ) s – c
C-0 -225,000.00
Enter 1st Cash Flow value 1 6 ) c C-1 16,000.00
Enter 2nd Cash Flow 1 6 6 0 0 c C-2 16,600.00
Enter 3rd Cash Flow 1 6 9 0 0 c C-3 16,900.00
Enter 4th Cash Flow 1 7 2 0 0 c C-4 17,200.00
Enter 5th (final) Cash Flow 2 7 5 ) c C-5 275,000.00
Find the IRR R “run” 9.83%
Enter the desired rate of return
and calculate NPV 9 s R “run” 7,616.73
Find the NFV R 11,719.29
Re-display the desired
rate of return R 9.00%
Clear registers* s x “All Cleared” 0.00
*This will clear Cash Flows and reset payments per year to 12 (e.g. monthly) for per-
forming the other examples in this guide.
Analysis: This investment would provide an internal rate of
return greater than the desired rate of return, making this a
positive investment.