The cmplete BA II plus Guide

Welcome to the big leagues.

In the last guide, we talked about the TVM row (Time Value of Money), which is great for steady, predictable things like car loans or mortgages where the payment is exactly the same every month.

But real life? Real life is messy.

If you start a business or invest in a project, you won’t make the exact same amount of money every year.

• Year 0: You lose money (Startup costs).
• Year 1: You make a little bit.
• Year 2: You make a lot.
• Year 3: You lose money again because the economy crashed.

The standard TVM keys can’t handle that chaos. For this, you need the Cash Flow Worksheet.

This guide covers Group 3: Investment Appraisal. We are going to learn how to tell if a business idea is a goldmine or a money pit using two legendary metrics: NPV and IRR.

1. The Players: What are NPV and IRR?

Before we push buttons, you need to know what we are looking for.

• NPV (Net Present Value): This is the ultimate “Yes/No” test. It calculates the total value of the project in today’s dollars, minus the cost.
  • NPV > 0: You make money. ACCEPT.
  • NPV < 0: You lose money. REJECT.
• IRR (Internal Rate of Return): This is the project’s actual profit rate. If your IRR is 15%, that’s like a bank account paying you 15% interest.
  • Rule: You want the IRR to be higher than the cost of borrowing money.

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2. The Setup: How to Enter Uneven Cash Flows

Let’s say you want to buy a specialized coffee cart for campus.

• Cost: $10,000 upfront.
• Year 1 Profit: $3,000.
• Year 2 Profit: $4,000.
• Year 3 Profit: $5,000.
• Your Required Return (Interest Rate): 10%.

Here is how to enter this “uneven” data.

Step 1: The “Clean Slate” (Crucial!)

Press CF (Second row).

Now, press 2nd + [CLR WORK] (Bottom left).

• Note: If you skip this, old data from your last homework assignment will mix in and ruin your life.

Step 2: Enter the Initial Investment (CF0)

The screen says CF0. This is Time 0 (Today). Since you are spending money, it must be negative.

• Type 10000 $\rightarrow$ Press +/- $\rightarrow$ Press ENTER.
• Screen should look like: CF0 = -10,000.00

Step 3: Enter Future Cash Flows

Use the Down Arrow ↓ to navigate.

• C01 (Cash Flow Year 1): Type 3000 $\rightarrow$ Press ENTER.
• Press ↓.
• F01 (Frequency): This asks “How many times does this happen in a row?” Since it’s just one year, leave it as 1.
• Press ↓.
• C02 (Cash Flow Year 2): Type 4000 $\rightarrow$ Press ENTER.
• Press ↓ (Skip F02, leave as 1).
• C03 (Cash Flow Year 3): Type 5000 $\rightarrow$ Press ENTER.

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3. The Verdict: Calculating NPV & IRR

Now that the data is in, let’s ask the calculator if this coffee cart is a good idea.

calculating NPV (Is it worth it?)

1. Press the NPV key.
2. Screen asks for I (Interest Rate). We said 10%.
3. Type 10 $\rightarrow$ Press ENTER.
4. Press ↓. Screen says NPV.
5. Press CPT (Compute).

Result: You should see $-169.05.

Verdict: The NPV is negative. You are losing value. REJECT THE PROJECT.

Calculating IRR (What is the return?)

1. Press the IRR key.
2. Press CPT.

Result: You should see 9.26.

Verdict: Your return is 9.26%, but you wanted 10%. Since 9.26% < 10%, the project is a fail.

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4. Pro-Tip: The “Frequency” (F) Shortcut

What if your project pays you $2,000 a year for 10 years straight?

You do not want to type C01, C02, C03… all the way to C10. That takes forever.

Use the F key!

1. C01: Enter 2000 $\rightarrow$ ENTER.
2. Press ↓.
3. F01: Enter 10 $\rightarrow$ ENTER.

This tells the calculator: “Take the cash flow I just typed and repeat it 10 times.”

Summary Checklist

• Step 1: Press CF and 2nd [CLR WORK].
• Step 2: CF0 is always your Startup Cost (Make it Negative!).
• Step 3: Use ENTER to save numbers and ↓ to move down.
• Step 4: Calculate NPV and IRR to make your decision.