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MANAGEMENT ACCOUNTING / COSTING:

Business/Financial calculator notes: Sharp EL-738

Single-variable statistics:

Example:

Student
Student # Mark
S1 36
S2 57
S3 34
S4 46
S5 6
S6 77
S7 30
S8 87
S9 72
S10 32
S11 46
S12 79

Calculate the following using a financial calculator:

(i) Mean (x)
(ii) Standard deviation based on the entire population (σx)
(iii) Standard deviation based on the sample (sx)

Ensure calculator is in single-variable statistic mode as follows:

Keystrokes: MODE 1 0

Enter the data into the calculator as follows:

Keystrokes: 36 ENT/DATA 57 ENT/DATA 34 ENT/DATA etc. (for all values)

Notes:
If the same value appears more than once (as 46 appeared twice above) it can be entered as follows:
Keystrokes: 46 (x,y ) 2 ENT/DATA
(i.e. the number 2 above indicates the number of occurrences, in this case twice - the order in which you enter
the data is irrelevant)

The following keys can be used to view the values you have entered and the frequency thereof:

Once you have pushed the above keys you can also edit, delete or insert a value and its frequency
using the following keys: ENT/DATA 2ndF CLR-D 2ndF INS-D
(to edit) (to delete) (to insert)

Calculate (i), (ii) and (iii) as follows:

(i) Keystrokes: RCL x OR ALPHA x = = 50.17

(ii) Keystrokes: RCL σx OR ALPHA σx = = 23.48

(iii) Keystrokes: RCL sx OR ALPHA sx = = 24.52

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For your consideration:

What is the difference between population standard deviation (σx) and sample standard deviation (sx) and when should
each of these be used?

Population standard deviation is used when it is known that the data set given represents the entire population, i.e. if
there are only 12 students in the class. Sample standard deviation is used when the information given indicates that the
data set is only a part of a larger population, i.e. if out of a larger class of students, only 12 are represented in a sample.
The difference in the standard deviation answers above is due to the fact that if the 12 students are a sample, we do not
know the population size and therefore an estimate of the size is required.

Two-variable statistics: (y = a + bx)

Example: Cost Estimation Using The Least Squares Method (Regression analysis)

Machine Hours Maintenance Cost

Month
(x) (y)
Jan 90 1500
Feb 150 1950
Mar 60 900
Apr 30 900
May 180 2700
Jun 150 2250
Jul 120 1950
Aug 180 2100
Sep 90 1500
Oct 30 1050
Nov 120 1800
Dec 60 1350

Calculate the following using a financial calculator:

(i) Variable cost (b) - the gradient
(ii) Fixed cost (a) - the y intercept in linear regression formulation
(iii) Total cost (y) for a given number of machine hours (x) e.g. 200 hours
(iv) No. of machine hours (x) for a given total cost (y) e.g. R2 800
(v) Correlation co-efficient (r), and hence
[note: this is the standardised form of the covariance (Cov) which is calculated as Cov = r x σ x x σ y ]
2
(vi) Co-efficient of determination (r )
(Note: The Standard Error of the Estimate (Se) and the Standard Error of the Coefficient (Sb) cannot be directly
calculated using the financial calculator and the formulas for Se and Sb therefore need to be used.)

Ensure calculator is in two-variable statistic mode as follows:

Keystrokes: MODE 1 1

Enter the data into the calculator as follows (ensuring you enter the independent variable first i.e. machine hours):
Keystrokes: 90 (x,y ) 1 500 ENT/DATA
150 (x,y ) 1 950 ENT/DATA
60 (x,y ) 900 ENT/DATA etc. (for all value sets)

Notes:
If the same value set appears more than once (as 90/1500 appeared twice above) it can be entered as follows:
Keystrokes: 90 (x,y ) 1 500 ENT/DATA ENT/DATA
(i.e. you enter a set of data values by pressing "ENT/DATA" as many times as it occurs, in this case twice - the order
in which you enter the data is irrelevant)

The following keys can be used to view the values you have entered and the frequency thereof:

Once you have pushed the above keys you can also edit, delete or insert a set of values and its frequency
using the following keys: ENT/DATA 2ndF CLR-D 2ndF INS-D

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Calculate (i) to (vi) as follows:

(i) Keystrokes: RCL b OR ALPHA b = = 9.93

(ii) Keystrokes: RCL a OR ALPHA a = = 620

(iii) Keystrokes: 200 2ndF y' = 2 605.71

(iv) Keystrokes: 2 800 2ndF x' = 219.57

(v) Keystrokes: RCL r OR ALPHA r = = 0.9438

(vi) Keystrokes: RCL r 2ndF yx 2

OR RCL r 2ndF x2 = = 0.8908

Please note that additional statistics (if needed) can also be calculated using the financial calculator once
the data has been entered e.g. the sum of the machine hours (∑x ), the sum of the maintenance cost
squared (∑y 2), the sum of the machine hours multiplied by the maintenance cost (∑xy ), the standard
deviation for the maintenance cost sample (sy ) etc.
These are calculated in the same way as other statistics e.g. for the sum of the machine hours (∑x ):
Keystrokes: RCL ∑x OR ALPHA ∑x = = 1 260

Learning curve: (y = ax b )

Example:

Using a financial calculator determine the cumulative average time per unit required to produce 30 units
when an 80% learning curve is present and the first unit takes 2 000 hours to produce.

Ensure calculator is in normal mode as follows:

Keystrokes: MODE 0

Calculate the cumulative average time per unit as follows:

Keystrokes: 2ndF ln 0.8 = = -0.2231

÷ 2ndF ln 2 = = -0.3219 M+

30 2ndF yx RCL M+ = = 0.335

x 2 000 = = 669.12 hours

Note: For the sequence of keys above it is important to start with M set as nil (0).
This is done as follows when the screen shows "0":
Keystrokes: STO M+

Alternatively:
When storing numbers, use the store button [STO] in conjunction with the ALPHA keys as follows:

Keystrokes: STO A, B, C, etc.

To recall these amounts:

Keystrokes: RCL A, B, C, etc.

This is useful when needing to store more than one number.

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FINANCIAL MANAGEMENT:

Business/Financial calculator notes: Sharp EL-738

Single-share statistics:

The statistics for a single share - mean (expected return) and standard deviation (risk) - will be calculated in
the exact same way as illustrated in the example under "Single-variable statistics" assuming the probability
assigned to each return outcome is the same.

If the probability assigned to each return outcome is not the same then the mean (expected return) and
standard deviation (risk) can be calculated using an extension of the "Single-variable statistics" discussed
earlier - effectively the probability of a return on a share can be viewed as the number of times the return
occurs in the set of possible returns.

Example:
Probability of
State of Economy Return Chance occurrence
Super boom 30% 12%
Boom 22% 25%
Normal 13% 30%
Recession 2% 18%
Severe recession -5% 15%

Calculate the following using a financial calculator:

(i) Mean (expected return)
(ii) Standard deviation (risk)
(iii) Variance (risk)

Ensure calculator is in single-variable statistic mode as follows:

Keystrokes: MODE 1 0

Enter the data into the calculator as follows (ensuring you enter the return on the share first ):
Keystrokes: 30 (x,y ) 0.12 ENT/DATA
22 (x,y ) 0.25 ENT/DATA
13 (x,y ) 0.3 ENT/DATA
2 (x,y ) 0.18 ENT/DATA
-5 (x,y ) 0.15 ENT/DATA

Notes:
The following keys can be used to view the returns you have entered and the frequency thereof:

Once you have pushed the above keys you can also edit, delete or insert a value and its frequency
using the following keys: ENT/DATA 2ndF CLR-D 2ndF INS-D
(to edit) (to delete) (to insert)

Calculate (i), (ii) and (iii) as follows:

(i) Keystrokes: RCL x OR ALPHA x = = 12.61%

(ii) Keystrokes: RCL σx OR ALPHA σx = = 11.187%

x
(iii) Keystrokes: RCL σx 2ndF y 2

OR RCL σx 2ndF x2 = = 1.252%

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Two-asset/share statistics (portfolio management):

Example:

Returns
Year Co. A Co. B
1 26% 24%
2 20% 35%
3 22% 22%
4 23% 37%
5 29% 32%

Calculate the following using a financial calculator:

(i) Mean (expected return) - for Co. A and Co. B
(ii) Standard deviation (risk) - for Co. A and Co. B
(iii) Variance (risk) - for Co. A and Co. B
(iv) Correlation co-efficient (r)
(v) Covariance (Cov)

Enter the returns for Co. A (x) and Co. B (y) into the calculator as illustrated in the example under "Two-variable
statistics".

Calculate (i) to (v) as follows:

(i) Keystrokes: RCL x OR ALPHA x = = 24 (Co. A)

RCL y OR ALPHA y = = 30 (Co. B)

(ii) Keystrokes: RCL σx OR ALPHA σx = = 3.16 (Co. A)

RCL σy OR ALPHA σy = = 5.97 (Co. B)

x
(iii) Keystrokes: RCL σx 2ndF y 2 = = 10 (Co. A)

RCL σy 2ndF x2 = = 35.6 (Co. B)

(iv) Keystrokes: RCL r OR ALPHA r = = -0.138

(v) Keystrokes: RCL r x RCL σx x

RCL σy = = -2.6 (using formula: Cov = r x σx x σy )

Calculating the Beta co-efficient:

The Beta of a share can be calculated quite simply once the data (i.e. return on the market and return on the
share) has been entered as illustrated under "Two-asset/share statistics (portfolio management)".
Ensure that you enter the market returns first (as the x variable).

Therefore, assuming the returns for Co. A in the previous example were the returns on the market, i.e. it has a Beta of 1,
then the Beta of Co. B would be calculated using a financial calculator as follows (after all the data has been entered):

Keystrokes: RCL b OR ALPHA b = = -0.26

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Additional Example incorporating probabilities:

Returns
State of Economy Chance Market Co. C
Severe recession 15% -5% -10%
Recession 18% 1% -2%
Normal 30% 9% 8%
Boom 25% 15% 15%
Super boom 12% 23% 32%

Calculate the following using a financial calculator:

(i) Beta of Co. C

As this is based on two-variable statistics, ensure calculator is in two-variable statistic mode as follows:
Keystrokes: MODE 1 1

Enter the data into the calculator as follows (ensuring you enter Market returns first):
Keystrokes: -5 (x,y ) -10 (x,y ) 0.15 ENT/DATA
1 (x,y ) -2 (x,y ) 0.18 ENT/DATA
9 (x,y ) 8 (x,y ) 0.3 ENT/DATA
15 (x,y ) 15 (x,y ) 0.25 ENT/DATA
23 (x,y ) 32 (x,y ) 0.12 ENT/DATA

Notes:
When calculating the Beta, market returns must always be entered first. This is because the Security Market Line (SML)
graph requires the market returns to be on the x-axis (being the independent variable). Co. C will be entered as y (the
dependent variable) and the last number entered will assign the returns the required probability.

Calculate (i) as follows:

(i) Keystrokes: RCL b OR ALPHA b = = 1.41

For all the calculations below ensure the calculator is in normal mode as follows:
Keystrokes: MODE 0

Calculating unknown variables (PV, N, I/Y, FV, PMT):

Example:

The value of a home loan when originated is R1 500 000.

Assuming the loan is for 20 years (240 months) after which time it is to be fully repaid and interest is to be
charged at 12% per annum (compounded monthly) i.e. 1% per month, then:
(i) What is the monthly repayment that needs to be made on the loan?

Calculate the above using a financial calculator as follows:

(i) Keystrokes: 1 500 000 PV 240 N 1 I/Y 0 FV

COMP PMT = -16 516.29

You can make any one of the variables (PV, N, I/Y, FV, PMT) the unknown and solve as illustrated above.

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Converting an Effective interest rate to a Nominal interest rate (and vice versa):

Example:

If the effective annual interest rate is 13.5%, then assuming interest is compounded monthly:
(i) What is the nominal annual interest rate (compounded monthly)?
(ii) What is the effective monthly interest rate?

Calculate (i) and (ii) using a financial calculator as follows:

(i) Keystrokes: 12 (x,y ) 13.5 2ndF →APR = 12.73% per annum (nom, cm)
(number of compounding periods in a year (12) is entered first and then the effective annual interest rate (13.5%))

(ii) Keystrokes (cont.): ÷ 12 = = 1.06% per month (eff)

If the nominal quarterly interest rate is 3.5%, then assuming interest is compounded quarterly:
(iii) What is the nominal annual interest rate (compounded quarterly)?
(iv) What is the effective annual interest rate?

Calculate (iii) and (iv) using a financial calculator as follows:

(iii) Keystrokes: 3.5 x 4 = = 14% per annum (nom, cq)

(iv) Keystrokes: 4 (x,y ) 14 2ndF →EFF = 14.75% per annum (eff)

(number of compounding periods in a year (4) is entered first and then the nominal annual interest rate (14%))

NB: For time value of money calculations you need to ensure that the number of periods (N) and interest
rate (I/Y) entered are comparable e.g. monthly periods with a monthly interest rate.

Additional example:

R20 000 was deposited into a savings account which pays interest of 8% per annum, compounded monthly.
If periodic withdrawals of R1 500 are made at the end of every six months in arrears, what will the savings
account balance be at the end of two years?

Calculate the above using a financial calculator as follows:

Keystrokes: 8 ÷ 2 = =4 M+

6 (x,y ) M+ 2ndF →EFF = 4.067 I/Y

4 N 1 500 PMT 20 000 +/- PV

COMP FV = 17 081.68

Alternative to calculating the above 4.067% interest rate:

Keystrokes: 12 (x,y ) 8 2ndF →EFF = 8.3 STO A

2 (x,y ) RCL A 2ndF →APR = 8.135

÷ 2 = 4.067

For your consideration:

Consider each of the above interest rates independently (4%, 4.067%, 8.3% and 8.135%) and state whether they are
effective or nominal interest rates. If they are nominal rates, what is the compounding period?

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Amortisation table:

Example:

If R200 000 is to be loaned (at an interest rate of 15% per annum) and repaid in equal annual instalments
over a period of 5 years, then:
(i) What is the annual repayment that needs to be made on the loan?
(ii) Construct the amortisation schedule for the 5 year loan.

Calculate (i) and (ii) using a financial calculator as follows:

(i) Keystrokes: 200 000 PV 5 N 15 I/Y 0 FV

COMP PMT = -59 663.11

(ii) Keystrokes:

Period 1 AMRT
(For period 1 AMRT P1 and AMRT P2 are both already set to 1 i.e. no need to set them)

Period 2 AMRT 2 ENT/DATA 2 ENT/DATA

(For period 2 AMRT P1 and AMRT P2 need to be set to 2)

Period 3 AMRT 3 ENT/DATA 3 ENT/DATA

(For period 3 AMRT P1 and AMRT P2 need to be set to 3)
etc. (for all periods)

The entire amortisation schedule can be constructed from the values displayed on the financial calculator:
(The split between interest and principal for loan repayments is often required in leasing questions)

Year Balance Payment Principal Interest Balance

1 200 000 59 663 29 663 30 000 170 337
2 170 337 59 663 34 113 25 551 136 224
3 136 224 59 663 39 229 20 434 96 995
4 96 995 59 663 45 114 14 549 51 881
5 51 881 59 663 51 881 7 782 -

Summation of periods:

The interest and principle repayments for a range of periods can easily be obtained - this will not only be
useful for Financial Management but also your Taxation and Financial Accounting studies.

Example:

An investor invested R100 000 in a savings account which accrues interest compounded semi-annually.
After 5 years the investor has been guaranteed a final pay-out of R148 024.
(i) Calculate the semi-annual interest rate on the savings account.
(ii) Determine the annual interest earned on the savings account.

Calculate (i) and (ii) using a financial calculator as follows:

(i) Keystrokes: 100 000 PV 5 x 2 N 0 PMT

148 024 +/- FV

COMP i = 4%

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(ii) Keystrokes:

Year 1 AMRT 2 ENT/DATA = 8 159.94

Year 2 AMRT 3 ENT/DATA 4 ENT/DATA = 8 825.78
Year 3 AMRT 5 ENT/DATA 6 ENT/DATA = 9 545.96
Year 4 AMRT 7 ENT/DATA 8 ENT/DATA = 10 324.91
Year 5 AMRT 9 ENT/DATA 10 ENT/DATA = 11 167.41

Discounting uneven future cash flows (capital budgeting / valuations):

Example:

If cash flows are as follows:

Today Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

-7 800 1 200 1 500 1 750 1 750 1 890 2 100 3 150

(i) Then what is the net present value today (at Year 0) applying a discount rate of 11%?
(ii) What is the internal rate of return (IRR) of the cash flow stream?

Enter the data into the calculator as follows:

Keystrokes: 7 800 +/- ENT/DATA 1 200 ENT/DATA 1 500 ENT/DATA etc. (for all values)

Notes:
If the same value appears more than once (as 1 750 appeared twice above) it can be entered as follows:
Keystrokes: 1 750 (x,y ) 2 ENT/DATA
(i.e. the number 2 above indicates the number of occurrences, in this case twice)

The following keys can be used to view the values you have entered and the frequency of the values:
CFi
Once you have pushed the above keys you can also edit, delete or insert a value and its frequency
using the following keys: ENT/DATA 2ndF CLR-D 2ndF INS-D
(to edit) (to delete) (to insert)

Calculate (i) and (ii) as follows:

(i) Keystrokes: 2ndF CASH 11 ENT/DATA COMP = 692.47

(ii) Keystrokes: 2ndF CASH COMP = 13.34%

When entering new data to perform any of the calculations mentioned in these notes it is essential to
ensure that the memory is clear and there is not previously entered data in memory that will distort your
calculations.

Memory is usually cleared as follows on the financial calculator:

Keystrokes: 2ndF CA

However, when clearing cash flows, previously entered using the CFi function, memory is to be cleared
as follows:

Keystrokes: CFi 2ndF CA

Fin Man RKD4 Lecture Notes (JD, 2017): Copy of Financial calculator notes (pg 1-9)_Sharp EL738