Is it possible to calculate present value of the following cash flows using Cash flow equation from calculator. I think the solution is to find CF0. Otherwise what is the easy way to solve this problem ? A firm is evaluating an investment that promises to generate the following annual cash flows: End of Year Cash Flows 1 $5,000 2 $5,000 3 $5,000 4 $5,000 5 $5,000 6 -0- 7 -0- 8 $2,000 9 $2,000 Given BBC uses an 8 percent discount rate, this investment should be valued at: A) $19,963. B) $23,529. C) $27,027. D) $22,043.
D… Find the NPV using appropriate keystrokes on the calculator.
What should I enter as CF0?
0… there is no initial outflow listed.
on the BA II Plus there is a shortcut when there are multiple contiguous cashflows all of the same amount. CF0=0 Enter CF1=5000 Enter Down arrow F01=5 Enter (5 flows of 5000) Down Arrow CF2=0 Enter Down arrow F02=2 Enter (2 flows of 0) Down Arrow CF3=2000 Enter Down arrow F03=2 Enter (2 flows of 2000) Down Arrow NPV I=8 Down Arrow Shows NPV - CPT 22044.55 Choice D
An even shorter short cut is to say that the first 5 cash flows are equal to approximately 25000/(1.08)^3 = 75%(25000) = 19500 and the second two cash flows by law of 72 are worth about 2200 so total about 21700 (answer D, next, and you have done the problem in less than 10 sec).
Thanks for replies. Now I understood on how to use cash flow method using calculator