NPV Computed Different that 12C

Things that aren't right, that are in the queue to be fixed... along with workarounds.
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Richie d
Posts: 2
Joined: Mon Jan 12, 2009 4:59 am

NPV Computed Different that 12C

Post by Richie d » Mon Jan 12, 2009 5:13 am

I'm getting different results from 12C vs 12E when computing NPV.

12C Answer
f clear REG
Cf0 = 0
NF = 18
CFj = 8000
Nj = 4
i = 6
NPV = ? = 10,294.5355

12E Answer
f clear REG
Cf0 = 0
NF = 18
CFj = 8000
Nj = 4
i = 6
NPV = ? = 27,720.8449

Let us know.

Xeno
Posts: 55
Joined: Sat Oct 25, 2008 4:15 pm

Re: NPV Computed Different that 12C

Post by Xeno » Mon Jan 12, 2009 12:52 pm

Firstly, I can not find an NF key on my 12C so I take it you meant Nj.

Secondly, this is not really a cashflow problem. There is no combination of inflow and outflow. It appears to be a TVM problem of a series of payments which commence in the future rather than now, and whose value is to be discounted back to the present at the same rate.

Is that not so?

If it is the case, I actually get 9711.86 as the answer on both the 12C and 12E assuming we are discounting back 18 periods. Your 10,294.54 figure comes from discounting back 17 periods. 12E's figure of 27,720.84 is the PV of the four 8,000 payments before that discounting back, because you entered 18 Nj after CFo, rather than then entering 0 CFj 17 Nj (or 18 Nj). The 12C accepts 0 CFo 18 Nj as the equivalent of 0 CFo 0 CFj 17 Nj, a sort of shorthand entry, whereas 12E simply says you are not allowed to have more than one CFo. That is a wrinkle in the 12E approach which might on the one hand be modified along the lines of the 12C to simplify things, and on the other hand is more accurate in terms of proper practice, although perhaps pedantically so.

Really though, it is a TVM problem and should be treated as such.

HTH

theDev
Posts: 240
Joined: Mon Aug 04, 2008 8:58 pm

Re: NPV Computed Different that 12C

Post by theDev » Tue Jan 13, 2009 10:35 am

good point! That being that Calc-12E behaves differently... it does. As Xeno pointed out, the present version DEMANDS that CFo be a non-repeated cash flow and ignores any repeats which is unlike HP. Not totally incorrect, but different.

In the interest of making them the same though, I'll change Calc-12E to behave as the 12C does. Look for the change in the next update.

Thank you for pointing this out!

Kim

Xeno
Posts: 55
Joined: Sat Oct 25, 2008 4:15 pm

Re: NPV Computed Different that 12C

Post by Xeno » Tue Jan 13, 2009 10:48 am

In the instructions for the product, though, it should be pointed out with this change that to enter:
0 CFo 18 Nj
means properly
0 CFo 0 CFj 17 Nj
which is different from "eighteen periods of zero cashflow".

The answer to the initial question $10294 or $9711 respectively, depending on what you meant to do. That is the user danger in the HP approach, and why it would be invaluable to be able to visualise cashflows on the calculator.

theDev
Posts: 240
Joined: Mon Aug 04, 2008 8:58 pm

Re: NPV Computed Different that 12C

Post by theDev » Tue Jan 13, 2009 1:51 pm

totally correct Xeno -- it needs to be crystal clear what is happening!

Richie d
Posts: 2
Joined: Mon Jan 12, 2009 4:59 am

Re: NPV Computed Different that 12C

Post by Richie d » Sun Jan 18, 2009 7:56 pm

Xeno,
Thanks for the speedy reply. I saw the answer that same day, but only have found time to thank you today.

Dev,
Got the latest version 1.3.0 and saw that you had updated the 12E to behave like the 12C. Cool.

I think that Visual Cash Flow editing is FANTASTIC!! Your continuing to develop this product makes me want to continue to recommend this app to others. I'll be showing this off to my friends in my financial classes to watch them drool.

Cheers,
Richie d

theDev
Posts: 240
Joined: Mon Aug 04, 2008 8:58 pm

Re: NPV Computed Different that 12C

Post by theDev » Sun Jan 18, 2009 9:46 pm

Glad you like it! Personally, I think it's long overdue.

Show it to your profs too please! I am trying to make this good enough for school... but need exposure. In fact, I'm looking to see if there are any leaders in Education that would take a serious look at it to see if they would endorse it as a suitable alternative to the actual 12C in b-school. If anyone can help, I'd really appreciate it, and would be willing to provide whatever they need to help with their evaluation. Just have them write (customerservice[at]stonemeadowdevelopment[dot]com)

Kim

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