One of the concerns expressed by many CTP candidates about taking the CTP exam is that they are limited to the use of a 4- function calculator for answering calculation questions. They understand that a 4- function calculator is sufficient for “crunching” the numbers, but find it to be a time consuming process when using a 4-function calculator to solve the Present Value equation because it involves an exponent..

So, I’d like to make you aware that you have access to an on-screen scientific calculator when you’re taking the test and to show you how you can use it to reduce your “number crunching” when answering a calculation question that requires you to solve for the Present Value of some Future Value.

Once you’ve brought-up the on-screen 4-function calculator, go to the tool bar and click on “View” and then click on “Scientific” which will give you access to the scientific calculator.

Before we get started with an example, here’s an alternative way the at the PV equation can expressed that will optimize your use of the scientific calculator.

Traditional Equation: PV = FV / (1 + i)ⁿ

Alternative Equation: PV = 1 / (1 + i)ⁿ x FV

Example:

XYZ company is in the process of analyzing capital expenditure proposals for inclusion in their Capital Budget as part of their annual budgeting cycle. One of these proposals is anticipated to generate annual cash flows of $10,000/year for 10 years. If XYZ has a WACC of 13%, what is the PV of the anticipated cash flow for the sixth year?

Answering this question by using the alternative PV equation and the scientific calculator works like this:

As you can see, this is a very quick way of calculating the PV for any FV. And would be very useful for answering a Net Present Value calculation question where you need to calculate the PV’s for a number of FV’s into the future.

- George Schilling, CTP