The video shows you how to calculate capital budgeting with a Texas Instruments BA2+ financial calculator. Capital budgeting will help you determine cash flows for given investments for a certain number of years in the future, thus helping you determine if the investment is worthwhile. The buttons you will use are the CF (cashflows) button, the NPV (net present value) button, and the IRR (internal rate of return) button. The video uses the example of a $10,000 investment that will return $5,000 in cash flows the first year, $4,000 the second year, and $2,000 each of the next two years. First push the CF button and type in the initial investment (10,000). Make the 10,000 negative since it is what you will be paying out. Hit enter, and then the down arrow. You are now ready to begin entering your future cash flows from this potential project. The calculator will prompt you with the notation "CO1" for the first cash flow. Type 5,000, press enter and then the down arrow. The calculator will then give you the prompt "FO1" for frequency, giving you the opportunity to enter how many times in a row the cash flow occurs. In this example it occurs once so you will simply hit the down arrow again to enter the next cash flow. Do this for all the years, remembering to change the frequency to 2 for the last 2,000. Once all cash flows are entered, you can calculate the net present value (NPV) of the project or the internal rate of return (IRR). To calculate the NPV, hit the NPV key and enter the interest rate - that is, the rate of return on the cash flows. Interest rates are entered as whole numbers. Hit compute, and it will tell you the NPV. If the NPV is positive, you should accept the project. To calculate the IRR, hit the IRR button after calculating the NPV and hit compute. This should help in doing capital budgeting problems with your calculator.
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