7-7
4. Cash Flow (Investment Appraisal)
This calculator uses the discounted cash flow (DCF) method to perform investment appraisal
by totalling cash flow for a fixed period. This calculator can perform the following four types of
investment appraisal.
• Net present value (
NPV )
• Net future value (
NFV )
• Internal rate of return (
IRR )
• Payback period (
PBP )
A cash flow diagram like the one shown below helps to visualize the movement of funds.
With this graph, the initial investment amount is represented by CF 0 . The cash flow one year
later is shown by CF 1 , two years later by CF 2 , and so on.
Investment appraisal can be used to clearly determine whether an investment is realizing
profits that were originally targeted.
u NPV
n : natural number up to 254
u NFV
u IRR
In this formula, NPV = 0, and the value of IRR is equivalent to i × 100. It should be noted,
however, that minute fractional values tend to accumulate during the subsequent calculations
performed automatically by the calculator, so NPV never actually reaches exactly zero. IRR
becomes more accurate the closer that NPV approaches to zero.
CF0
CF1
CF2
CF3
CF4
CF5
CF6
CF7
CF0
CF1
CF2
CF3
CF4
CF5
CF6
CF7
NPV = CF0 + + + + … +
(1+ i)
CF
1
(1+ i)
2
CF2
(1+ i)
3
CF3
(1+ i)
n
CFn
i =
100
I %
NPV = CF0 + + + + … +
(1+ i)
CF
1
(1+ i)
2
CF2
(1+ i)
3
CF3
(1+ i)
n
CFn
i =
100
I %
NFV = NPV × (1 + i )
n
NFV = NPV × (1 + i )
n
0 = CF0 + + + + … +
(1+ i)
CF
1
(1+ i)
2
CF2
(1+ i)
3
CF3
(1+ i)
n
CFn
0 = CF0 + + + + … +
(1+ i)
CF
1
(1+ i)
2
CF2
(1+ i)
3
CF3
(1+ i)
n
CFn
