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End of
period Project X Project Y
0 -$100,000 -$140,000
1 $40,000 $0
2 $40,000 $0
3 $40,000 $0
4 $40,000 $240,000
Enter in the cash flows for periods 1 through 4 for each, with Project X in L1 and Project Y in L2:
L1 L2
40000 0
40000 0
40000 0
40000 240000
--------- -----------
Then
Y=
and then complete the arguments, hitting the key X,T,汈,n for X in the following:
npv(X,-100000,L1)
\Y1=npv(X,-100000,L1)
1
In the Y= screen, the Plot1 Plot2 Plot3 at the top of the screen should not be highlighted. If they are, use the
cursor to go to the highlighted item and hit ENTER to toggle off the item.
npv(X,-140000,L2)
Xmin=0
Xmax=30
Xsc1=5
Ymin=-80000
Ymax=100000
Ysc1=20000
Xres=1
The Xmin and Xmax are the maximum discount rates that are using in the npv function. The
Ymin and Ymax are the maximum and minimum of the Y variables (that is, the NPVs). The
“sc1” are the grid lines and these can be set to zero for a cleaner graph.
If you want different lines used for the two projects, in the Y= screen, use the cursor to go to
the left of the “Y1=” or “Y1=2” and hit ENTER; the choices of plot lines will be shown.
STO 2nd L3
L1 L2 L3
40000 0 40000
40000 0 40000
40000 0 40000
40000 240000 -200000
--------- -----------
Then calculate the internal rate of return of the differences. The initial cash flow in the first
argument is the difference in the initial cash flows (that is, -$100,000 - -$140,000 = +$40,000).
irr(40000,L3)
The answer is 9.128%. This is the discount rate at which the NPV profiles of the two projects
intersect. This is the point of indifference between the two projects.