64 Section 4: Additional Financial Functions
finding IRR are extremely complex, involving a series of iterations – that is, a
series of successive calculations. In each iteration, the calculator uses an estimate
of IRR as the interest rate in a computation of NPV. The iterations are repeated
until the computed NPV reaches about zero.
16
The complex mathematical characteristics of the IRR computation have an
additional ramification: Depending on the magnitudes and signs of the cash
flows, the computation of IRR may have a single answer, multiple answers, a
negative answer or no answer.
17
For additional information regarding L, refer to Appendix C. For an
alternative method of calculating IRR, refer to Section 13.
Reviewing Cash Flow Entries
z To display a single cash flow amount, press :, then key in the number
of the register containing the cash flow amount to be displayed.
Alternatively, store the number of that cash flow amount (that is, the value
of j for the CF
j
desired) in the n register, then press :gK.
z To review all the cash flow amounts, press :gK repeatedly. This
displays the cash flow amounts in reverse order – that is, beginning with
the final cash flow and proceeding to CF
0
.
z To display the number of times a cash flow amount occurs consecutively –
that is, to display the N
j
for a CF
j
– store the number of that cash flow
amount (that is, the value of j) in the n register, then press :ga.
z To review all the cash flow amounts together with the number of times
each cash flow amount occurs consecutively (that is, to review each CF
j
and N
j
pair), press :ga:gK repeatedly. This displays N
j
followed by CF
j
beginning with the final cash flow amount and proceeding
to N
0
and CF
0
.
Note: Neither L nor l change the number in the n register. However,
each time :gK is pressed, the number in the n register is decreased
by 1. If this is done, or if you manually change the number in the n register
in order to display a single N
j
and/or CF
j
, be sure to reset the number in the
n register to the total number of cash flow amounts originally entered (not
including the amount of the initial investment CF
0
). If this is not done,
NPV and IRR calculations will give incorrect results; also, a review of cash
flow entries would begin with N
n
and CF
n
, where n is the number currently
16.
In practice, because the complex mathematical calculations inside the calculator are done
with numbers rounded to 10 digits, NPV may never reach exactly zero. Nevertheless, the
interest rate that results in a very small NPV is very close to the actual IRR.
17.
In the case of multiple answers for IRR, the decision criteria listed on page 58 should be
modified accordingly.
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