CFA CFA Level 1 NPV/IRR Calculator Questions

NPV/IRR Calculator Questions

  • This topic has 8 replies, 7 voices, and was last updated Oct-18 by setty.
  • Author
    Posts
    • CFA_redemption_12713
      Participant
      Up
      1
      Down

      Hey all, having some issues with my calculator (BA II Plus) with regards to NPV/IRR questions and my booklet isn’t helping much with the right order for keystrokes. Here’s an example question, can someone help walk me through the proper touch by touch por favor: The financial manager at Genesis Co is looking into the purchase of an aprtment complex for $550,000. Net after-tax cash flows are expected to be $65,000 for each of the next 5 years, then drop to $50,000 for four year. Genesis’ required rate of return is 9% on projects of this nature. After nine years, Genesis Co. expects to sell the property for after tax proceeds of $300,000. What is the respective IRR and NPV on this project?-Thanks all

    • Dr_Pain28
      Participant
      Up
      1
      Down

      @CFA_redemption_12713 Do you by chance have a correct answer to the question so we can check our work?

      I got IRR=6.66% NPV= -$65,169.64

      I got these numbers by first using the Cash Flow register (CF) on your calculator immediately above the I/Y button.

      CF0=-$550,000
      C01=$65,000
      F01= 5 (We will receive the identical $65,000 for 5 straight years)
      C02= $50,000
      F02= 4 (We will receive the $50,000 cash flow for 4 years)
      C03= $300,000
      F03= 1

      Hit the “IRR” button (above payment) and hit ‘CPT’ to get the IRR of 6.66%.

      Hit ‘NPV’ (above present value), put in 9% for the Interest. Down scroll to read NPV, then hit compute to get -$65,169.64

      I hope that i did this correctly and got the answers that the book gave. If I didn’t, post the correct answers and I’ll try to help figure out where I went wrong. I hope that this helps.

    • vincentt
      Participant
      Up
      3
      Down

      I think the calculation should be as follows (highlighted in bold are the differences to @dr_pain28 ‘s answer):

      CF0=-$550,000
      C01=$65,000
      F01= 5 (We will receive the identical $65,000 for 5 straight years)
      C02= $50,000
      F02= 3 (We will receive the $50,000 cash flow for 3 years)
      C03= $350,000
      F03= 1

      The question mentioned that it will sell the property for $300k after the 9th year which is when it receives the last payment of $50k hence it should be $350k instead of $300k.

      So the NPV should be -$53,765 and IRR should be 7.015%.

    • Dr_Pain28
      Participant
      Up
      4
      Down

      @vincentt I initially had it that way with the last cash being the $350,000. I just wasn’t entirely sure from reading the question when exactly they were going to sell it relative to receiving the last cash flow. But I agree with your answer.

    • vincentt
      Participant
      Up
      1
      Down

      @dr_pain28 we’ll just wait for the answer and see.

    • microeconomist
      Participant
      Up
      3
      Down

      I use the HP 12c, but there is a Charterholder who uses a TI in all his problem sets; search “Ronald Moy CFA” on youtube.

    • edulima
      Participant
      Up
      4
      Down

      I’m hooked to the HP12c as well… call me “old school”… 😉

    • mariemT
      Participant
      Up
      5
      Down

      Can you please tell me how to use the HP12c for this question ? Thanks

    • setty
      Participant
      Up
      1
      Down

      @Dr_Pain28 thank you!!!! I’ve been trying to figure out why this hasn’t worked for me for days and ur post just explained that I need to hit IRR first BEFORE CPT. Brilliant, I can sleep well tonight 🙂 

Viewing 8 reply threads
  • You must be logged in to reply to this topic.