User's Guide helps you to quickly pick up financial calculations.

          Author -- Dr. James Ko

This User's Manual will provide you a thorough understanding on the financial calculations including derivations of all equations used in this program. We want to make sure that you use our program with peace of mind.

If you use IRR, this booklet gives you instructions on avoiding the misuse of IRRs with Excel or other financial calculators.  Precision protects you from the misleading IRRs by returning 'N/A' where numerical figures are not appropriate.

If you don't have interest in the technical part, skip ahead. You don't need to know all the technical details to learn the user-friendly Precision financial calculator.  Remember to look at the interesting real-world examples.
Example V-1      Verify IRR
IRR, the Internal Rate of Return, is defined as the discount rate that generates a zero net present value. Verify this by using your own example.
[Solution]
Create yearly cash flows: -1000,300,300,300,300. This gives you IRR =7.71%. Now, type in 7.71 in the Discount Rate box. The NPV and FV at this discount rate become zero.

 

Example 1-4       Timing Makes A Difference
Continue from Example 1-1. What if Mr. Thompson invests $50,000 at the year's end and receives revenues also at the end of the following years. Will NPV change? How about IRR, FV?
[Answer: IRR=10.14%; NPV=$8,318 vs. $8,636; FV=$10,033]

Example 1-1 has higher Net Present Value ($8,636), but IRR and FV remain unchanged. Note that investment happens at the year's end. So you need to enter 0 in row 1.

[Procedure]
In the Cash Flows worksheet, type in 0, -50,000, 10,000, 15,000, 20,000, 20,000 from row 1 to row 6. Click row 1, keep on pressing left mouse button, drag down until row 6. You will see the IRR=10.14%. Next, enter 3.82 in the Discount Rate box. You will get NPV and FV.


Example 1-6          Calculate Rate of Return from accounting records
Suppose you have an investment account. The beginning balance at 1/1/1999 was $100,000. Within a year, you had contributions and withdrawals from this account. What is the investment rate of return for that year?

[Procedures]
From the financial calculator, select the 'Investment' tab.  Select Period Type to be Non-Periodic. The beginning balance is your investment, so type in –100,000 for the first cell. Enter 1/1/1999 on the second column. Enter the amount and date for your contributions or withdrawals. Note that contributions are negative (since they are investments and cash out flows) and withdrawals are positive (since they are revenues and cash in flows). Enter the ending balance and 12/31/1999 to the last row. Highlight cash flows from row 1 to the last one. You will get the IRR. Precision automatically converts all IRRs to annual equivalent.

If you have the transaction amount and date data in spreadsheet format, make sure the first column is the amount and the second column is the date, copy the range from the spreadsheet, focus the Precision’s cash flows input worksheet at the first cell, press Ctrl-V to paste the data. Precision supports Windows OLE copy and paste functionality. This is extremely useful when you have large amount of data.

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