7-74. Cash Flow (Investment Appraisal)This calculator uses the discounted cash flow (DCF) method to perform investment appraisalby totalling cash flow for a fixed period. This calculator can perform the following four types ofinvestment appraisal.• Net present value (NPV)• Net future value (NFV)• Internal rate of return (IRR)• Payback period (PBP)A cash flow diagram like the one shown below helps to visualize the movement of funds.With this graph, the initial investment amount is represented by CF0. The cash flow one yearlater is shown by CF1, two years later by CF2, and so on.Investment appraisal can be used to clearly determine whether an investment is realizingprofits that were originally targeted.u NPVn : natural number up to 254u NFVu IRRIn 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 calculationsperformed automatically by the calculator, so NPV never actually reaches exactly zero. IRRbecomes more accurate the closer that NPV approaches to zero.CF0CF1CF2 CF3CF4CF5CF6CF7CF0CF1CF2 CF3CF4CF5CF6CF7NPV = CF0 + + + + … +(1+ i)CF1(1+ i)2CF2(1+ i)3CF3(1+ i)nCFni = 100I %NPV = CF0 + + + + … +(1+ i)CF1(1+ i)2CF2(1+ i)3CF3(1+ i)nCFni = 100I %NFV = NPV × (1 + i )nNFV = NPV × (1 + i )n0 = CF0 + + + + … +(1+ i)CF1(1+ i) 2CF2(1+ i) 3CF3(1+ i)nCFn0 = CF0 + + + + … +(1+ i)CF1(1+ i) 2CF2(1+ i) 3CF3(1+ i)nCFn
