How to Calculate IRR and Payback with CALC 1

Using the Cash Flows Calculator

See the CALC 1 Cash Flows Calculator Video for a demonstration of calculating cash flows.

Case Study: Sarah's Coffee Shop Expansion

Sarah is considering expanding her coffee shop. The project requires an initial investment of $50,000 and is expected to generate the following cash flows over the next five years:

Year	Cash Flow
0	-50,000
1	15,000
2	20,000
3	25,000
4	30,000
5	35,000

Let's calculate the IRR and Payback Period:

Value	Keystrokes	Display	Description
	shift + C cf		Clears the financial list.
1	STO P/YR	1.00	Stores the payments per year.
-50000	CF0	-50,000.00	Stores the initial investment.
15000	CFj	15,000.00	Stores the Year 1 cash flow.
20000	CFj	20,000.00	Stores the Year 2 cash flow.
25000	CFj	25,000.00	Stores the Year 3 cash flow.
30000	CFj	30,000.00	Stores the Year 4 cash flow.
35000	CFj	35,000.00	Stores the Year 5 cash flow.
	shift Σf	75,000.00	Calculate the sum of the cash flows to verify the entries.
	IRR	34.12	Calculates the IRR
	PB	2.60	Calculates the Payback Period

The History Detail

Calculates the Internal Rate of Return
           1.00 : The periods per year.
          34.12 : The internal rate of return.
List: listf
-50000.00
15000.00
20000.00
25000.00
30000.00
35000.00

Calculates the Payback
           2.60 : The payback.
List: listf
-50000.00
15000.00
20000.00
25000.00
30000.00
35000.00

The expansion project has an IRR of 34.12% and a Payback Period of 2.60 years. This high IRR suggests it's a very profitable venture, and Sarah will recover her investment in about 2 years and 7 months.

Tips for Cash Flow Analysis

• Always clear the financial list (list f) before starting a new calculation.
• Use the shift Σf function to verify your cash flow entries.
• For monthly cash flows, set P/YR to 12 to calculate annual rates.
• Use the List Manager to edit, reorder, add, or delete cash flow values.
• Tap the plot key to gain insights that might not be immediately apparent from the numbers alone.
• Remember that negative values represent outflows (investments) and positive values represent inflows (returns).
• Always check the History Detail to verify your inputs and results.

Further Reading

• Internal Rate of Return (IRR)
• Payback Period