Cash flow (investment appraisal) – Casio ALGEBRA FX2.0 Financial User Manual
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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
)
• Pay back period (
PBP
)
A cash flow diagram like the one shown below helps to visualize the movement of funds.
CF
0
CF
1
CF
2
CF
3
CF
4
CF
5
CF
6
CF
7
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 prof-
its that were originally targeted.
uNPV
NPV
=
CF
0
+ + + + … +
(1 +
i
)
CF
1
(1 +
i
)
2
CF
2
(1 +
i
)
3
CF
3
(1 +
i
)
n
CF
n
i =
100
I
n
: natural number up to 254
uNFV
NFV
=
NPV
×
(1
+
i
)
n
uIRR
0 =
CF
0
+ + + + … +
(1 +
i
)
CF
1
(1 +
i
)
2
CF
2
(1 +
i
)
3
CF
3
(1 +
i
)
n
CF
n
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.