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Date Posted: 17:31:21 10/20/02 Sun
Author: Dr. D.
Subject: Missing cash flow problems
In reply to: Alex 's message, "Missing cash flow problems" on 07:55:37 10/19/02 Sat

First off, the assignment is to be done as an individual excercise. So, asking for help on the board is not appropriate (I'd rather you email me. Then I can decide what level of hints to give, which will then be posted to the board by me). Having said that, I'll offer two hints:

1) If an investment (when purchased at a certain price) would result in (for example) a 20% rate of return, then the present value of ALL the cash flows (at that 20% rate of return) would be equal to the investment's cost.

2) You can calculate the PV of all the "known" cash flows, and then compare it to the cost.

Note: The following comment holds true for the BA2+ and HP series calculators:

If you are using the NPV function, and you leave the initial cash flow as a zero, the resulting NPV will be the PV of the other cash flows. If you input the initial cost of the investment as a negative number (as CF0), the NPV you see will be the DIFFERENCE between the PV of the inflows and the initial investment.

Using the NPV function is merely a way to efficiently calculate PVs of irregular cash flows. You can always do it "cash flow by cash flow" and add them up to verify your answer. It's a bit long doing it that way, but it works.


>I would like to know the steps in solving these
>problems. I have tried to put the initial investment
>as CF0 with a minus sign and solving NPV for the
>missing cash flow which I enter as 0,F1.Also, I have
>subtracted the sum of all cash flows on the list - NPV
>of cash flows, then find the future value of the cash
>flow in question. They give different results.Which
>way is correct?Thanks.

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