Finding the internal rate of return on a financial calculator takes about 30 seconds once you know the keystrokes. The process has two stages: enter your cash flows into the cash flow worksheet, then press a couple of keys to compute IRR. Here’s exactly how to do it, with the specific button sequence for the TI BA II Plus (the most common model used in finance courses and on professional exams).
What IRR Tells You
IRR is the discount rate that makes the net present value of a series of cash flows equal to zero. In plain terms, it’s the annualized rate of return an investment is expected to earn. If you buy a rental property for $200,000 and receive various cash flows over the next ten years, the IRR is the single percentage that summarizes how well that investment performed on an annual basis. The higher the IRR, the more attractive the investment.
You can’t solve for IRR with simple algebra when there are more than a couple of cash flows. The calculator uses trial and error internally, testing thousands of rates until it finds the one that zeroes out the equation. That’s why you need the cash flow worksheet rather than the time value of money keys.
Step-by-Step on the TI BA II Plus
The TI BA II Plus and BA II Plus Professional use five keys for cash flow analysis: CF, NPV, IRR, and the up and down arrows. Here’s the full button sequence using a simple example. Say you invest $7,000 today and receive $3,000 in Year 1, $5,000 each year for Years 2 through 5, and $4,000 in Year 6.
Enter Your Cash Flows
- Open the worksheet. Press CF, then press 2nd followed by CE|C to clear any old data. You should see “CF0” on the display, which represents your initial cash flow at time zero.
- Enter the initial investment. Type 7000, then press the +/− key to make it negative. Press ENTER, then the down arrow.
- Enter Year 1. Type 3000, press ENTER, then the down arrow. The display now shows “F01,” which asks how many times this cash flow repeats consecutively. Since $3,000 only appears once, press the down arrow again to accept the default of 1.
- Enter Years 2 through 5. Type 5000, press ENTER, then the down arrow. Now at “F02,” type 4 and press ENTER (because $5,000 repeats four times in a row). Press the down arrow.
- Enter Year 6. Type 4000, press ENTER.
That’s all the data entry. The frequency feature (“F” fields) saves you from typing the same cash flow multiple times. If every cash flow is different, just leave each frequency at 1 by pressing the down arrow past it.
Compute IRR
- Press IRR. The display shows “IRR = 0.00” or a similar placeholder.
- Press CPT (compute).
The calculator displays the IRR as a percentage. For the example above, you’d see roughly 52.71%. Done.
The Sign Convention Rule
The most important thing to get right is the sign of each cash flow. Money you pay out (your initial investment, additional costs, capital calls) must be entered as a negative number using the +/− key. Money you receive (income, sale proceeds, distributions) stays positive. If you forget to make the initial investment negative, the calculator will either throw an error or return a nonsensical result, because IRR requires at least one sign change in the cash flow series.
A common mistake is typing a negative sign before the number. The +/− key is not the subtraction key. You type the number first, then press +/− to flip it to negative before pressing ENTER.
Using the Frequency Shortcut
Each time you enter a cash flow amount (C01, C02, C03, etc.), the next screen asks for that flow’s frequency (F01, F02, F03). If a particular dollar amount repeats for several consecutive periods, entering the frequency saves keystrokes. In the example above, entering $5,000 with a frequency of 4 is identical to entering $5,000 four separate times, each with a frequency of 1.
Be careful with this shortcut. It only works for consecutive identical cash flows. If you receive $5,000 in Years 2 and 3, then $8,000 in Year 4, then $5,000 again in Year 5, you can’t lump all three $5,000 entries together. You’d need to enter them as three separate groups: $5,000 with frequency 2, $8,000 with frequency 1, and $5,000 with frequency 1. The BA II Plus supports up to 32 cash flow entries, which is more than enough for most problems.
HP 10bII and HP 12c
If you’re using an HP calculator instead, the logic is the same but the key labels differ. On the HP 10bII, you press the orange shift key followed by CFj for each cash flow (starting with CF0 for the initial outlay), then press the orange shift key and IRR/YR to compute. To repeat a cash flow, press the orange shift key and Nj after entering the amount.
On the HP 12c, you enter the initial investment and press g followed by CF0. Each subsequent cash flow uses g followed by CFj. To compute, press f followed by IRR. The HP 12c uses Reverse Polish Notation, so there’s no equals key, but for cash flow entry the process is straightforward.
Regardless of the brand, the sign convention is the same. Outflows are negative, inflows are positive.
When the Calculator Shows an Error
If you press CPT and get an error message, check three things. First, make sure your initial investment is negative. The calculator needs at least one sign change (from negative to positive, or vice versa) to solve for IRR. If all your cash flows are the same sign, there’s no rate of return to find.
Second, confirm you cleared old data before starting. Leftover cash flows from a previous problem will corrupt your answer. Always press 2nd then CE|C (on the TI) or clear the registers on HP models before entering new numbers.
Third, consider whether your cash flows have more than one sign change (for example, an outflow, then inflows, then another outflow). This can produce multiple mathematical solutions for IRR. Most calculators will still return one answer, but it may not be the economically meaningful one. If your project has an unconventional cash flow pattern like this, you may want to verify the result by computing NPV at the displayed rate to confirm it equals zero.
Quick Practice Problem
Try this on your own calculator to make sure you’ve got the keystrokes down. You invest $10,000 today. You receive $2,000 at the end of Year 1, $4,000 at the end of Year 2, and $7,000 at the end of Year 3.
Enter CF0 as negative 10,000. Enter C01 as 2,000 (frequency 1), C02 as 4,000 (frequency 1), and C03 as 7,000 (frequency 1). Press IRR, then CPT. You should get approximately 8.90%. If your answer matches, your technique is solid.