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Net Present Profiles and The TI-83 Calculator

This document discusses how to use a TI-83 calculator to plot net present value profiles for two mutually exclusive projects (Project X and Project Y) and calculate the crossover discount rate. It provides instructions to enter the cash flows into lists L1 and L2 on the calculator, use the NPV function to calculate the profiles in Y1 and Y2, set up the graph parameters, and plot the profiles. It then explains how to calculate the difference between the cash flow lists, store it in L3, and use the IRR function to find the discount rate where the NPV profiles intersect, which is the crossover rate.

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39 views2 pages

Net Present Profiles and The TI-83 Calculator

This document discusses how to use a TI-83 calculator to plot net present value profiles for two mutually exclusive projects (Project X and Project Y) and calculate the crossover discount rate. It provides instructions to enter the cash flows into lists L1 and L2 on the calculator, use the NPV function to calculate the profiles in Y1 and Y2, set up the graph parameters, and plot the profiles. It then explains how to calculate the difference between the cash flow lists, store it in L3, and use the IRR function to find the discount rate where the NPV profiles intersect, which is the crossover rate.

Uploaded by

lc
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© © All Rights Reserved
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Net Present Profiles and the TI-83 Calculator

Prepared by Pamela Parrish Peterson

Consider the following mutually exclusive projects:

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

1. Creating a plot of the net present value profiles


To plot the NPV Profile for these two projects, do the following:

STAT 1:Edit ENTER

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=

for Y1, enter in the NPV function:

APPS 1:FINANCE ENTER 7

and then complete the arguments, hitting the key X,T,汈,n for X in the following:

npv(X,-100000,L1)

Hit ENTER to move on.

The first line in the screen should look like this:1

\Y1=npv(X,-100000,L1)

Then complete the same for Y2=

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)

Then set up the X variable by depressing WINDOW.

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.

Depress GRAPH. The graph will show slowly.

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.

2. Calculating the cross-over discount rate


Using the lists L1 and L2 created for the profiles, calculate the difference in the lists:

2nd L1 – 2nd L2 ENTER

STO 2nd L3

Checking the lists with STAT 1:Edit ENTER

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).

APPS 1: FINANCE ENTER 8

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.

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