Cash Flows Calculator
Cash Flow Values
Cash Flows =
Periods/Year = 1
Payment Timing = 0
Profitability Index =
Reinvestment Rate =
Calculates compound interest problems where payments are not the same from period to period. Computations include net present value (NPV), net future value (NFV), standard and modified internal rate of return (IRR and MIRR), net uniform series (NUS), profitability index and payback.
Cash Flows are entered as amount;occurrences with each cash flow on its own row (return to separate rows). Occurrences are optional. It is assumed to be 1 if excluded.
Cash Inflows and Outflows
In cash flow problems, positive and negative numbers have different meanings: positive numbers are inflows of cash (cash received) while negative numbers are outflows (cash paid). See Understanding Cash Flows below for more details.
Cash Flow Values
- Cash Flows: Cash flows. Column 1 is the cash flow. Enter each cash flow on its own row. If a second column is entered (in the form 1000; 3) then the second column is the number of occurrences for that cash flow.
- Interest/Year: Required to perform some cash flow computations, the interest per year is entered as a percentage.
- Periods/Year: Periods per year automatically adjusts the interest rate. When the interest rate is entered as a yearly rate, entering a value for periods per year will automatically determine the periodic interest rate. When calculating an interest rate (with IRR or MIRR), the reported interest rate will be on a yearly basis (the number of periods per year entered times the rate).
- Payment Timing: Net uniform series can either be calculated as beginning of period or end of period. Most financial calculators report end of period results only.
- NPV: The net present value (NPV) method computes the amount gained or lost on a given investment in today's dollars. This uses a market rate of return (interest per year) to discount cash flows back to the present. Assuming an initial cash outflow, a positive NPV means the investor's assets would increase and the investment should be attractive. A negative NPV means that the investor's assets would decrease and the investment is not attractive. If NPV is zero, then the investor would probably be neutral to the investment. If the initial cash flow is an inflow, the reverse would be true.
- IRR: The internal rate of return (IRR) computes the rate at which the investment pays for itself. This can be compared against a desired rate of return. If the IRR is greater than a desired rate, the investment may be attractive. The internal rate of return method does not take interest per year or periods per year into consideration when calculating. Also IRR will report 0 if there is no sign change in the Cash Flows. Finally IRR can have multiple answers when the cash flows have more than one sign change.
- NFV: The net future value (NFV) computes the future value of the net present value.
- NUS: The net uniform series (NUS) performs computations by taking the net present value of the cash flows as if they are even and regular.
- Payback: The payback method tells at which period an initial investment will be paid back. If there is no payback, the reported answer is 0. The payback method does not take interest per year or periods per year into consideration when calculating.
- Profitability Index: The profitability index, also known as the benefit/cost ratio, shows the relative profitability of any cash flow problem, dividing the present value of the inflows by the present value of the outflows. Profit Index will report 0 if there are no sign changes in the Cash Flows.
- Total: The total is the sum of the cash flows.
- Reinvestment Rate: Reinvestment interest rate used in MIRR calculations.
- MIRR: The modified internal rate of return (MIRR) is an alternative for IRR when there is more than one sign change. When IRR has multiple sign changes, IRR can have more than one answer. MIRR eliminates sign changes by using reinvestment and borrowing interest rates instead. A note: MIRR will report 0 if there are no sign changes in the Cash Flows.
Understanding Cash Flows
To further understand the cash flow model, here is an example of a timeline. Note that inflows of cash are treated as positive amounts (designated by no sign or a [+] sign) and outflows of cash as negative amounts (designated by a [–] sign).
[https://poweronecalc.s3.amazonaws.com/templates/cash_flows.png | understanding cash flows example]
Note that, although the interval between cash flows must be equal, the amounts of those cash flows do not have to be the same. Cash flows generally involve some initial outflow of cash followed by subsequent inflows over a number of periods. For instance, an initial outflow could be followed by various amounts paid back over five periods, each period being one year apart. Cash flows do not have to be initial outflows followed by inflows, either. Cash flows could be inflows preceded by outflows, or an initial inflow or outflow followed by some mixture of cash flows as well.
All cash flow problems can be represented in this fashion, with cash inflows and outflows viewed over some time period.
Your company is looking to buy a new piece of equipment to help it increase manufacturing capacity to meet demands for its largest product. The managers are wondering what the return would be if the equipment was purchased for $8,000. You can expect at least a 15% return on the investment elsewhere and are counting on the following yearly cash flows: Year #1: $2,000, Years #2-#3: $3,000 each year, Years #4-#6: $4,000 each year. In addition, we believe we could get 10% for reinvestment purposes. What are each of the cash flow computations for comparison?
Part 1: Calculate Comparisons
- Cash Flows:
- Interest/Year%: 15.0
- Periods/Year: 1
The following results are calculated:
- NPV = $3,985.14
- IRR% = 29.926%
- NFV = $9,217.87
- NUS = $1,053.02
- Payback = 3 periods [in this case years because periods per year is one]
- Pft Index = 1.50
- Total = $12,000
Part 2: Calculate MIRR
- Reinvest Rate%: 10.0
The Modified IRR is 20.789%.
In an office lease arrangement, the initial out of pocket costs will be $20,000 for improvements. This is followed by six months of rent-free space, followed by 18 months at $4,000 per month, 12 months at $4,500 per month and a final 12 months at $5,000 per month. What is the IRR on this investment?
- Cash Flows:
- Periods/Year: 12
The IRR is 130.384%.
Net Present Value
Internal Rate of Return
Net Future Value
Net Uniform Series
Modified Internal Rate of Return