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BA II PLUS: cash-flow signs and perspective

Use a single perspective throughout a calculation so current and future amounts have consistent signs.

Omni Finance AcademyBy Omni Finance Academy
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Name the cash-flow owner

A depositor who pays 1,000 now and receives the modeled future amount has a current outflow and future inflow. A borrower receiving 1,000 now and paying it back later uses the opposite perspective. The signs change together; the underlying growth factor need not change.

Compare two fictional single-sum states

Two annual intervals at 5%, no recurring payment
PerspectivePVPMTExpected FV
Deposit perspective−1,0000+1,102.5
Borrower perspective+1,0000−1,102.5

Use the sign-change key on the entered amount

Set N = 2, I/Y = 5, P/Y = C/Y = 1 and PMT = 0. Clear prior TVM values before entering the known state.

  1. Enter the depositor’s current outflow1000+/−PV

    PV is −1,000; the subtraction operator is not the sign-change key.

  2. Compute the future inflowCPTFV

    The expected result is +1,102.5 under the stated state.

Distinguish sign from magnitude

Both magnitudes reconcile to 1,000 × 1.05². A negative computed amount can be a valid perspective result. Do not erase its sign or enter every payment as positive without explaining whose cash flows the model uses.

Further references