The TI-84 series of calculators is a valuable tool for finance students and professionals, particularly for calculating Net Present Value (NPV). NPV is a key metric used in capital budgeting to determine the profitability of an investment or project. It essentially calculates the present value of future cash flows, discounted at a specified rate, and subtracts the initial investment.
The TI-84’s built-in finance functions greatly simplify NPV calculations. To access the NPV function, press the APPS button, then select Finance. You might need to scroll down to find it. Once in the Finance menu, select npv( (usually option 7). This will paste the function onto your home screen. The function requires you to input the discount rate, the initial investment (as a negative number), and the subsequent cash flows.
The syntax for the NPV function on the TI-84 is as follows: npv(rate, initial_investment, {CF1, CF2, …, CFn}). Let’s break down each component:
- rate: This is the discount rate (or required rate of return) expressed as a decimal. For example, a 10% discount rate would be entered as 0.1.
- initial_investment: This is the initial cost of the project or investment. It’s crucial to enter this as a negative number, as it represents an outflow of cash.
- {CF1, CF2, …, CFn}: This is a list of the cash flows for each period. Cash inflows are positive numbers, and cash outflows (after the initial investment) are negative numbers. The cash flows must be entered in the order they are expected to occur. The curly braces {} are essential for creating the list, accessible using the second function and parenthesis keys (2nd + ( and 2nd + )). Separate each cash flow with a comma.
For example, if you are evaluating a project that requires an initial investment of $10,000, and is expected to generate cash flows of $3,000, $4,000, and $5,000 over the next three years, with a discount rate of 8%, you would enter the following into your TI-84: npv(0.08, -10000, {3000, 4000, 5000}). Press ENTER to calculate the NPV.
The result will be the net present value of the project. A positive NPV indicates that the project is expected to be profitable and increase shareholder wealth, while a negative NPV suggests that the project is likely to result in a loss. A zero NPV means the project is expected to break even.
The TI-84 is a powerful tool, but it’s important to understand the underlying concept of NPV and the meaning of the inputs and outputs to make informed financial decisions. Always double-check your inputs to ensure accuracy. The TI-84 simplifies the calculation, but you need to interpret the result within the context of the investment decision.
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