Prepared by Diane Tanner University of North Florida

Chapter 15 Using the BAII Plus Professional Calculator for NPV and IRR Prepared by Diane Tanner University of North Florida

BAII Plus Professional • Requiredfor FIN 3403, your next business class • Contains a number of different financial functions • Much like a work sheet in Excel in that it contains cells that hold data inputted

Set Decimals onBA II Plus Professional • Default setting = 2 decimal places • Can display up to 8 places • How to set to 4 decimals • Press 2nd[Format] • The screen will display • DEC 00.00 • Enter 4 • as the number of decimals places to be displayed • Press Enter • Press 2nd • Press CPT to quit Recommended for ACG 2071

Entering Data • Cash flow (CF) worksheet • A stored function in the BAII calculator • Used to determine NPV and IRR of a series of future cash flows • To open the CF worksheet • Press 2ndCF • Close and exit from the CF worksheet • Press 2ndCPT • Amounts inputted stay in the CF worksheet until erased • Even if you turn your calculator off

Cash In or Out? • Very important to specify cash flow directions • Cash inflows • Enter as positive numbers • Cash outflows • Entered as negative numbers • How? Press the +/- key to toggle from positive to negative

IRR Example WD, Inc. is deciding whether to make an investment of $2,000 for a machine that is expected to provide net cash inflows of $500 for year 1, $800 for year 2, and $1,400 for year 3. WD’s required rate of return is 8.3%. Evaluate. Step 1: Enter the CF worksheet: 2ndCF Step 2: Clear the cash flow worksheet: 2ndCE/C The screen will display CF0 = 0.0000 Step 3: Input the CF for year 0: 2000 +/- Enter The +/- key toggles from positive to negative. Step 4: Press . Input the CF for year 1: 500 Enter continued

IRR Example cont. WD, Inc. is deciding whether to make an investment of $2,000 for a machine that is expected to provide net cash inflows of $500 for year 1, $800 for year 2, and $1,400 for year 3. WD’s required rate of return is 8.3%. Evaluate. Step 5: Press . Accept the ‘1’ default for FO1 by pressing again. Step 6: Input the CF for year 2: 800Enter Step 7: Press twice and input the CF for year 3: 1400Enter Step 8: Press IRR. Step 9:PressCPT. Answer = 13.98%

NPV Example WD, Inc. is deciding whether to make an investment of $2,000 for a machine that is expected to provide net cash inflows of $500 for year 1, $800 for year 2, and $1,400 for year 3. WD’s required rate of return is 8.3%. Evaluate. Step 1: Enter the CF worksheet: 2ndCF Step 2: Clear the cash flow worksheet: 2ndCE/C The screen will display CF0 = 0.0000 Step 3: Input the CF for year 0: 2000 +/- Enter The +/- key toggles from positive to negative. Step 4: Press . Input the CF for year 1: 500 Enter continued

NPV Example cont. WD, Inc. is deciding whether to make an investment of $2,000 for a machine that is expected to provide net cash inflows of $500 for year 1, $800 for year 2, and $1,400 for year 3. WD’s required rate of return is 8.3%. Evaluate. Step 5: Press . Accept the ‘1’ default for FO1 by pressing again. Step 6: Input the CF for year 2: 800Enter Step 7: Press twice and input the CF for year 3: 1400Enter Step 8: Press NPV. At the I= prompt, input 8.3 Enterfor the interest rate. Step 9:Press CPT. Answer = $245.91

NPV and IRR • If you need to calculate both NPV and IRR • Input the cash flows only once • To calculate NPV immediately after you solve for IRR, perform only steps 8 and 9 of the NPV instructions: • Step 8: Press NPV. At the I= prompt, input8.3 Enter for the interest rate. • Step 9:Press CPT • To calculate IRR after you solve for NPV, perform only steps 8 and 9 of the IRR instructions: • Step 8: Press IRR • Step 9:Press CPT

NPV and IRR Cheat Sheet • To clear the worksheet: • CF 2nd CLRWork • To enter data: • (where # appears, you must enter a number) • # +/- Enter • ↓# Enter↓ • ↓#Enter ↓etc, for each CF period • To compute IRR: • IRR CPT • To compute NPV: • NPV #Enter ↓CPT

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Prepared by Diane Tanner University of North Florida