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HP 10bii Calculator - Net Present Value and Internal Rate of Return

Calculator symbol key
Calculating net present value
Example of calculating a discounted contract with uneven cash flows
Calculating internal rate of return
Example of an IRR/YR calculation

Calculator symbol key

The procedures in this document use the following text to represent symbol keys:
Key
Description
Text Representation
colored key; shift key
SHIFT

Calculating net present value

The net present value (NPV) function is used to discount all cash flows using an annual nominal interest rate that is supplied.
These steps describe how to calculate NPV:
  1. Press SHIFT, then C ALL and store the number of periods per year in P/YR.
  2. Enter the cash flows using CFj and Nj.
  3. Store the annual nominal interest rate in I/YR, and press SHIFT, then NPV.

Example of calculating a discounted contract with uneven cash flows

The opportunity exists to purchase a contract with the following cash flows:
End of Month
Amount
4
$5,000.00
9
$5,000.00
10
$5,000.00
15
$7,500.00
25
$10,000.00
How much should be paid for the contract so that a yearly yield of 15 percent can be earned on the investment?
I/YR = 15%
Keys
Display
Description
Press SHIFT, then C ALL
0.00
Clears registers
Press 12, SHIFT, then P/YR
12.00
Sets payments per year
Press 0, then CFj
0.00
Enters initial cash flow of zero. The cash flow number is displayed as long as the CFj key is held down
Press 0, then CFj
0.00
Enters first cash flow
Press 3, SHIFT, then Nj
3.00
Enters number of occurrences
Press 5000, then CFj
5,000.00
Enters second cash flow
Press 0,then CFj
0.00
Enters third cash flow
Press 4, SHIFT, then Nj
4.00
Enters number of occurrences
Press 5000, then CFj
5,000.00
Enters fourth cash flow
Press 2, SHIFT, then Nj
2.00
Enters number of occurrences
Press 0, then CFj
0.00
Enters fifth cash flow
Press 4, SHIFT, then Nj
4.00
Enters number of occurrences
Press 7500, then CFj
7,500.00
Enters sixth cash flow
Press 0, then CFj
0.00
Enters seventh cash flow
Press 9, SHIFT, then Nj
9.00
Enters number of occurrences
Press 10000, then CFj
10,000.00
Enters next cash flow
The cash flows that describe the prospective investment are now in the calculator. Press RCL, CFj, then 0 followed by RCL, CFj, [+], and RCL, SHIFT, then Nj, repeatedly to view the cash flows and number of times each occurs.
Now that the cash flows have been entered, store the interest rate and calculate the net present value.
Keys
Display
Description
Press 15, then I/YR
15.00
Stores annual interest rate
Press SHIFT, then NPV
27,199.92
Calculates net present value of stored cash flows
This result shows that if a yearly yield of 15 percent is to be earned, then $27,199.92 should be paid for the contract.

Calculating internal rate of return

  1. Press SHIFT, then C ALL; store number or periods per year in P/YR.
  2. Enter the cash flows using CFj and Nj.
  3. Press SHIFT, then IRR/YR.
When IRR/YR is calculated, the annual nominal rate that gives the NPV of zero appears.
More than one IRR/YR can exist. If the calculator displays NO SOLUTION, there is no answer. This situation might be the result of an error, such as a mistake in keying in the cash flows. A common mistake that results in this message is putting the wrong sign on a cash flow. A valid cash-flow series for an IRR/YR calculation must have at least one positive and one negative cash flow.

Example of an IRR/YR calculation

If the seller of the contract in the previous example wants $28,000 and that price is accepted, what is the yield? This is an IRR/YR calculation that requires a slight modification to the currently stored cash flows.
Keys
Display
Description
Press 28000, [+/-], SHIFT, STO, CFj, then 0
-28,000.00
Changes initial cash flow
Press SHIFT, then IRR/YR
12.49
Calculates annual nominal yield

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