| Financial Toolbox |
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Present or Future Values
The toolbox includes functions to compute the present or future value of cash flows at regular or irregular time intervals with equal or unequal payments: fvfix, fvvar, pvfix, and pvvar. The -fix functions assume equal cash flows at regular intervals, while the -var functions allow irregular cash flows at irregular periods.
Now compute the net present value of the sample income stream for which you computed the internal rate of return. This exercise also serves as a check on that calculation because the net present value of a cash stream at its internal rate of return should be zero. Enter
NPV = pvvar(Stream, ROR)
which returns an answer very close to zero. The answer usually is not exactly zero due to rounding errors and the computational precision of the computer.
| Note:
Other toolbox functions behave similarly. The functions that compute a
bond's yield, for example, often must solve a nonlinear equation. If you then
use that yield to compute the net present value of the bond's income stream, it
usually does not exactly equal the purchase price -- but the difference is
negligible for practical applications.
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| | Interest Rates/Rates of Return | | Depreciation | |