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CONTENTS

Introduction 1 Using Pure Finance 2 Cashflows, Dates and Percentages 3 The INT Menu 4 The BUSINESS Menu Appendix A The Pure Finance Pack

© Copyright Distributed Information Processing Ltd 1987

All Rights reserved. This Pure Finance manual and the programs contained on the Pure Finance Pack are copyrighted works of Distributed Information Processing Ltd, England. Copying of the manual and programs, in whole or in part, by any means whatsoever is prohibited without the express written permission.

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Distributed Information Processing Ltd does not warrant that this program will work with all versions of Psion Organiser II. In particular, the software may not work with early versions of the Psion operating system.

If within 12 months of purchase this product can be shown to the reasonable satisfaction of DIP to be faulty due to defective or poor manufacture or software design, DIP will at the option of the purchaser refund the purchase price or replace the product. Apart from this warranty, DIP will not in any event be liable for any loss, including consequential loss, howsoever arising, including but not limited to loss of use, loss of stored data, loss of profit or loss of contracts. This limitation of liability shall not apply to consumer transactions nor to any liability for death or personal injury.

Taking care of your Psion Organiser system

To avoid any possible damage to your Psion Organiser system, the manufacturer (Psion Ltd) recommends that all items, including the DIP Program Packs, should not be exposed to extremes of temperature or humidity, nor subjected to hard knocks or excessive force, nor immersed in liquids. Do not use volatile liquids for cleaning.

Written and typeset by Barry Thomas, 01 732 1313.

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Psion Organiser II and Comms Link are trade marks of Psion Ltd.

INTRODUCTION

Fitting The Pack

To fit the Pure Finance Pack to the Organiser, first switch off the Organiser by selecting OFF from the top level menu. Slide off the protective cover of one of the slots on the back of the Organiser and insert the Pure Finance Pack, taking care to push it firmly home into the slot.

Switch the Organiser on again by pressing the ON/CLEAR key at the top left of the keyboard.

To use the Pure Finance Pack, you should insert a new item, PURE, into the Organiser s top level menu by following this procedure:

1. Use the cursor keys at the top right of the keyboard to position the cursor at the place in the menu you would like PURE to appear
2. Press the MODE key
3. Type PURE
4. Press EXE.

The top level menu will now contain the item PURE. To begin using the Pure Finance Pack, select PURE from the menu by moving the cursor to that item and pressing EXE.

At any time when using the Pure Finance Pack, should you wish to exit from an activity, press ON/CLEAR.

1
USING PURE FINANCE

Pure Finance will run on the Psion Organiser II Model CM or XP. You may, however, need to clear some space in the Organiser's internal memory for the programs in Pure Finance to be fully usable.

When PURE is selected from the top level menu as described in the introduction to this manual, the PURE menu is presented. These are tha itens is that menu with a brieg description og each.

Note that the items Int. and Business lead to further sub-menus. The items in these menus are also described here.

The items in the PURE menu have the following uses:

Cash F

Enter a series of input and output cash flows. Calculates the Net Present Value of the series of cash flows and the number of terms until payback is achieved for a given interest rate or the Internal Rate of Return.

Dates

Determine the number of daysbetween two given dates, the date in x days from any given date or x days back from a given date.

Percent

Calculate mark-up rates and difference in prices from Cost price, Sales price and percentage mark-up.

The Int. Menu (Interest)

The item Int. in the PURE menu leads to another menu which contains the following items:

The Business Menu

The item Business in the PURE menu leads to another menu which contains the following items:

MAKING IT WORK

Most of the facilities provided by the Pure Finance Pack operate in the same way: you are offered a number of variables for which you may enter values. The Pure Finance pack will attempt to calculate values for the variables which you do not supply.

Obviously, if there are 5 possible variables in a calculation and you supply only one of them, it will be impossible for the Pure Finance Pack to calculate the other four, but there are occasions when more than one variable can be calculated at one time.

When one of the Pure Finance Pack facilities is selected, the screen will show a question mark alongside the blank variables. Use the UP or DOWN keys to move from item to item. To enter values, simply type the number beside the name of the variable. The question mark prompt will disappear, being replaced by the value entered.

If you return to a value already entered, the existing value may be edited by using the LEFT and RIGHT keys to position the cursor; the DEL key and SHIFT DEL to remove numbers and adding numbers. If you return to an existing value and type another number, this will replace the existing value.

To make a calculation based on the numbers you have entered, press the EXE key. Only press EXE when you have entered sufficient values for the calculation, otherwise an error message may be displayed. For example, "More than one unknown".

Other error messages may be displayed if outrageous values are entered. For example, take care that when a period interest rate is expected, you do not enter the annual percentage rate. If unrealistic figures are produced from a calculation, go back and check all of your inputs, especially those for interest rates.

Note that the ON/CLEAR key takes you out of the current activity back to the previous menu, and does not just clear the current variable entry as in the Organiser's built in calculator.

Ensure that outgoing payments are entered as negative, and incoming payments as positive. For example, taking out a loan of £10000 will mean an entry of 10000. Making an investment of £10000 for equipment will mean an entry of -10000.

If you enter all of the variables for a given equation so there is nothing left for Pure Finance to calculate, the message, "Press = at value to be calculated", will be displayed. Press ON/CLEAR to return to the variables, then press the = key beside the variable you wish to calculate. The value of that variable will be discarded and the question mark prompt redisplayed.

When you have calculated one result, if you go back and change the values used, as long as you do not change the first result, just press EXE to make the new calculation.

THE MODE MENU

At any time when using the items in the PURE menu, you can press the MODE key to use the MODE menu. The MODE menu contains the following items:

Using Calc has the same effect as pressing EXE when the variables and their values are displayed.

The only other of these items which needs a little explanation is Memory. When a result has been produced from any of the Pure Finance calculators, the result may be copied into any of the Organiser's 10 built-in calculator memories. You can then move to any of the other features within Pure Finance and retrieve the contents of any of the memories in exactly the same way.

Note that percentages are passed via the calculator memories in fractional format. For example, if the result of a calculation is an APR of 10%, this may be stored to one of the calculator memories by pressing the MODE to view the MODE menu, and selecting a memory in the usual way.

If you now exit from Pure Finance, enter the Organiser's built-in Calculator and examine the contents of that memory, it will be seen to be 0.1. Now return to the Pure Finance pack. Select any of the calculations which has an interest rate as one of the variables. Enter the interest rate as the name of the calculator memory you used, for example, M0. When you move to any of the other variables or press EXE to make the calculation, the value of that memory is retrieved and substituted for the appropriate variable in the equation.

In the case above where an interest rate of 10% was used, this is stored in the calculator memory as 0.1, but is returned into the next calculation as 10%.

When dates are passed to the calculator memories, these are stored as a number of days from 1 January 1980.

At certain times there are three other items which appear in the MODE menu: Amort, XY and Forecast. For details of Amort, see chapter 4, The Int. Menu. For details of XY and Forecast, see chapter 5, the Business Menu.

Other than when a result has been saved to one of the Organiser's calculator memories, when you exit any of the Pure Finance Pack facilities, the figures just used and results just produced are discarded.

2
CASHFLOWS, DATES AND PERCENTAGES

CASHFLOWS

CashF in the PURE menu allows you to calculate Internal Rate of Return (IRR) for a series of negative and positive cash flows, or the Net Present Value (NPV) and the number of periods to payback at a given interest rate. Up to 60 cashflows may be entered at one time depending on the amount of free memory available.

It is important to decide at the start what period your figures are based upon and that consistency is maintained. Also ensure that the correct interest rate is used for the period used; an interest rate of 5% sounds good until it is applied every month - or week!.

Calculating IRR

For example, you buy a piece of machinery which costs money to buy, install and operate, but generates more income for your business. Given the initial setup costs and a monthly running cost, against the income generated by the new machinery, at what interest rate (the internal rate of return or IRR) would the venture make a profit?

The machine costs, say, £10000. In the first three months, the machine generates an extra £500 in income but staff training costs also run at £500 per month. Thereafter, the machine generates £600 per month over a period of 18 months.

When you first select CashF from the PURE menu, the screen prompts for an interest rate and the first of a series of cashflows. You want to know the interest rate, so don't enter a value against i%. Use the DOWN key to move to the next item, the first of the cashflows (cashflow number 0). This will be the initial cost of the machine of £10000. As the payment is going out from your bank account, it is negative, so enter -10000.

Move down again to the subsequent cashflows and enter the following figures:

Press EXE. The screen will show the message "Enter guess". You may now enter a guess at the result of the calculation. This simply makes the calculation shorter for Pure Finance if you have a good idea of the likely result.

Alternatively you may just press EXE again and let Pure Finance do all the work for you. As the calculation is carried out, the current value of the interest rate in the equation is displayed on the screen. When the final result is found, the screen shows the message "I.R.R. is " and the result. In this case the IRR is 0.621749%.

To find the APR on this period interest rate, press MODE to view the MODE menu. Select Memory and put the figure for the period interest rate into. say, memory 0.

Now press ON/CLEAR to return to the PURE menu, select Int. to view the Int. menu. and select A.P.R. The four variables in this equation are:

The last of these is different to the rest in that it is not a numeric variable. The possible settings are PERIOD and ANNUAL. Use the ← or → keys to swap between the two possible settings. You have entered a period interest rate, so leave this value as PERIOD. For further details of this item, see chapter 4, Int.: APR.

When you press EXE the annual percentage rate is calculated. In this example the result is 7.72%.

Calculating NPV and Payback

Using the same example as for IRR above. instead of leaving the interest rate blank, enter a figure for the interest rate per period (cost of capital). For example, enter 0.5 as an interest rate for each period of one month (APR 6.17%). Press EXE and the Net Present Value and number of terms to payback is calculated. In this example the results are 741.73 and a payback of 20 terms.

These mean that the machinery investment would be (just) a good investment at the interest rate given (0.5% per month) and the machinery would have paid for itself at the 20th term (20 months).

When an NPV result is displayed, to store the result in one of the Organiser's memories, just press the MODE key. The usual memory storage screen will be displayed, without having to go via the MODE menu. The result is stored to the memory in the usual way.

DATES

The item Dates in the PURE menu is a simple utility with just three variables: a start date, an end date and the number of days in between.

Given values for two of these variables, Pure Finance will calculate the third. For example, you have a bridging loan which is costing £38.42 per day in interest. You took out the loan on 26 August and paid it back on 25 September. How many days was that and therefore how much did it cost?

Enter the dates in the format dd/mm/yy, but don't actually enter the slashes; as soon as you have entered the second digit for the days. the cursor moves over the slash to the month.

So in the example above, enter the following values:

Note that when you use the ↓ key to move down to the next variable, the day for the given date is calculated. Press EXE and the number of days between the two dates is calculated, in this case 30 days, so the cost of the bridging loan was 30 x £38.42 = £1152.60.

PERCENTAGES

The item Percent in the PURE menu allows you to calculate percentages either up or down from a given figure, or to enter two figures and determine the percentage and actual difference.

When you select Percent from the PURE menu, you are presented with a list of four variables:

In all calculations with this facility, the Diff variable is non-editable, this is always calculated by Pure Finance from the other figures.

A common use for this sort of calculation is for VAT. You have spent £6258 gross in the last quarter on materials for your business. What amount of that figure was VAT?

Enter the following values for the variables and press EXE:

The screen then shows the cost nett of VAT and the amount of VAT paid, in this case £5441.74 and £816.26 respectively.

Another example is where your costs on a particular job have come to, say, £26858, you run an advertising agency with a profit margin is 42.5% - what is the price to the customer and therefore your profit margin?

Enter the following values for the variables and press EXE:

Pure Finance then calculates the price to the customer and the profit, in this example, £38272.65 and £11414.65 respectively.

3
THE INT. MENU

When you select Int. from the PURE menu, you are presented with another menu, the INT menu, which contains the following items:

When using Compound, an extra item is available in the MODE menu (accessed by pressing the MODE key). This item is Amort. For full details of Amort, see under COMPOUND below.

COMPOUND

The item Compound in the INT menu is used for a variety of calculations based around interest rates. The variables in this equation are as follows:

Tax% and Tax$ are non-calculable variables. These may be given values, but cannot be calculated from other given data.

The Pay variable has two settings, END and BEGIN, according to when the payment is made against the loan outstanding, the end or the beginning of the period. The default setting is END. To change between the settings use the ← or → keys.

For example, I need a loan to buy a car. How much can I borrow over three years at an APR of 11.5%, with a monthly payment of £150 and no tax relief?

Enter the following values into the variables and press EXE:

When you press EXE the value of the loan is calculated, i.e. the amount I can borrow under the conditions stated. This is displayed as a positive value as it is a loan rather than a payment. In this example, the result is £4587.04.

Taking another example, I have just taken out a 25 year repayment mortgage of £45000 at an APR of 10.5%. My marginal tax rate is 27% and a loan of up to £30000 can be claimed against tax. What will be my gross payment per month?

Enter the following values into the variables and press EXE:

When you press EXE the payment is calculated and displayed as a negative value. In this example, the payment is £411.86 gross. As the nett can change from month to month, to find the actual payment of interest and principal in a given period, select Amort from the MODE menu. For full details of the amortisation process, see under AMORTISATION below.

Another example: My credit card bill has now reached £1200. I can only afford to pay off £70 per month. The monthly interest rate is 1.75%. How long will it take to pay off the outstanding balance?

Enter the following variable values and press EXE:

When you press EXE the result is calculated and displayed alongside the N variable. In this example the result is 20.56, so in 20 months I will have almost paid off the balance on the account.

Another example: I have decided to invest my £500 Christmas bonus every year until my retirement in 15 years time. The building society offer 8% APR on my savings. If I reinvest everything until my retirement date, what will be the final balance of the account?

Enter the following values into the variables and press EXE:

When you press EXE, the result is displayed alongside the FV variable. In this example, the result is £13576.06.

A final example; I am building an extension on my house and am told that on a loan of £10000 over 15 years, my monthly payments will be £134.26, payable at the beginning of each month. How does the interest rate on this loan compare with my existing mortgage at 10.5%?

Enter the following values against the variables and press EXE:

When you press EXE, the display prompts you to enter a guess at the interest rate. You can enter an approximate figure to help shorten the calculation time or just press EXE again to let Pure Finance do all of the work.

The result is displayed alongside the i% variable and is, in this example, 1.2% per month.

You can now transfer the result to one of the calculator memories via the MODE menu as discussed earlier. Now take the value into the APR calculator to determine the APR on the loan. The result evaluates to 15.39%. It is therefore cheaper to extend your mortgage rather than accept this loan.

AMORTISATION

Regular payments made against a loan pay off part capital and part interest. The initial repayments consist of mainly interest, later payments consist of mainly capital. The Amort option in the MODE menu is only available when using Compound.

Amort allows you to calculate the relative amounts of capital and interest payments for any period in the duration of the loan.

Let's now look more closely at the example we used earlier of the 25 year mortgage of £45000 at an APR of 10.5%. At some point during the repayment of the mortgage, the outstanding balance will drop below £30000' - the tax relief threshold. At this point you are not taking the maximum advantage of the tax relief available and so the nett payments will increase. When does this happen?

Here are our figures again:

The result was calculated to £411.46. Now press MODE to view the MODE menu. Select Amort and, only if tax relief applies, the display shows the message, "Interest shown Nett". Press any key to continue.

The screen now prompts for four new variables:

The last two of these are non-editable variables. You may only enter values for the period number or the outstanding balance.

Enter 30000 against the balance variable and press EXE. The display will show the current stage in the calculation, which may be quite lengthy. The period at which the balance drops below £30000 is calculated to be 187.

This means that after paying your mortgage for a little over 15 and a half years, to take maximum advantage of tax relief, you should increase the size of your mortgage.

The calculation also evaluates the amount of principal and interest rate for that particular period. In this example, the amount of interest is £184.84 and the principal is £158.58.

To calculate you nett payments after tax relief, for the four variables above, simply enter 1 against the # prompt (period number) and press = against balance. In this example, the result is £309.96 (interest) + £33.46 (principal) = £343.42. This is the nett monthly payment on your mortgage.

To examine the Amort figure for all of the periods in the duration of the loan, now press MODE. The MODE menu now includes the additional option Table. Select Table to print out an amortisation table using the Psion Comms Link.

A.P.R.

Interest rates are often quoted as a percentage for a monthly or weekly period. To calculate the APR (Annual Percentage Rate) it is not sufficient to multiply, for example, the monthly rate by 12 because the interest is compounded.

The A.P.R. item in the INT menu performs this calculation for you. When you select A.P.R., four variables are available as follows:

The first three of these are self explanatory. The last is the switch to enable you to work out an APR from a period figure, or a period figure from a given APR.

To calculate the APR from a period interest rate, the last. setting should be PERIOD, as you are entering a period rate. To switch between the two settings, use the ← or → keys.

For example, your credit card statement quotes a monthly interest rate of 1.75%. To calculate the APR, enter the variables as follows and press EXE.

The result is then shown alongside APR, in this example, 23.14.

Occasionally, interest rates are quoted on a nominal annual basis. This option may be used to calculate the real APR by entering the nominal annual rate against i% and setting Int. to ANNUAL.

TIME

The Time option in the INT menu is used to calculate payments over specific time periods on an investment. For example, your mortgage payments, made by direct debit, differ from month to month according to the number of days in the month.

What is the payment figure for the period from 31 January 1988 to 29 February 1988 on a mortgage with £39837.50 outstanding balance at an APR of 11%?

The variables in this equation are as follows:

To calculate the payment, enter the values for the variables as follows and press EXE.

The payment is calculated and displayed alongside Pmt. In this example the result is £331.69.

4
THE BUSINESS MENU

The Business item in the PURE menu leads to a further sub-menu containing the following items:

The last of these, Forecast, calculates a number of statistical values for a given set of numbers. When using this item, an additional two items are added to the MODE menu (accessed by pressing the MODE key). These items are XY and Forecast. These items are covered in detail under Forecast later in this chapter.

Deprec.

A company's assets usually depreciate in value over a period of time, this depreciation can be calculated in either of two ways: linear or sum of years digits (SOYD).

Few assets really depreciate in linear fashion; the line is usually steep at the beginning, becoming less steep after a period of time. However, linear depreciation is often assumed for simplicity. The item Deprec. in the Business menu allows you to calculate depreciation according to any of the methods above.

When you first select Deprec. from the Business menu, another menu is displayed containing the two types of depreciation mentioned, Linear and SOYD. Select one of these according to the method you wish to use.

Linear Depreciation

The variables which make up this equation are as follows:

For example, your company buys a car for £10000 which in four years will be worth £3000. What is the depreciation per month of the value of the car?

Enter the values for the variables as follows and press EXE:

The depreciation will be calculated and displayed alongside Depr. In this example, the monthly depreciation of the car is £145.83 per month; a factor to consider when costing the company car fleet.

However, most assets do not depreciate neatly along a straight line. The alternative is to use SOYD (Sum Of Year's Digits).

SOYD Depreciation

The variables which make up this equation are as follows:

In the example used above, the figures are the same for the book value of the car (£10000), the salvage value (£3000) and the number of periods (48). The car depreciates very quickly early on in its life compared to the end of its usefulness to the company.

Compare the depreciation in the value of the car for period (month) 1, 10, 20, 30 and 40.

Enter the values for the variables Book, Salv. and Life as above, and enter the numbers 1, 10, 20, 30 and 40 into the # variable in turn. After each, press EXE and read off the depreciation figures. The results should be as follows:

Notice how the value of the car drops sharply at first but then evens out after a period of time. These figures could be used to plot a graph of the value of the car against time.

Declining Balance Depreciation

If you know the rate at which an asset is depreciating, you can calculate the actual amount of depreciation for any given period. This type of calculation is used where the value of th asset deprecates at a given percentage per month but never reachers zero.

The variables available are:

B-even

The B-even (Break-Even) item in the Business menu allows you to determine when a manufacturing or sales enterprise will break even and, hopefully, start to make a profit.

The variables in this equation are as follows:

Consider this example. A company designs and starts to build a Widget. The machinery to produce the widget cost £500. The cost of producing widgets in terms of material and other consumables is £5 each. The sale price of the widget is £14.99. How many widgets must be sold to break even on the investment?

Enter the values for the variables as follows and press EXE:

The number of sales required to break even is calculated and displayed alongside #sold. In this example, you need to make and sell 50 (actually 50.05) widgets to break even.

Forecast

This item differs from the rest of the facilities offered by the Pure Finance pack in that the results produced by its calculations are not fiscal figures. They do however, have great significance when applied to business matters, as we shall see.

When you select Forecast from the Business menu, the screen shows the top two spaces in a 60 item list. Numbers may be entered in any or all of these spaces. Blank spaces remain blank - they do not default to zero and are not counted. Zero values must be entered as such.

Multiple values may be entered in any of the spaces as follows. To enter the value 7 ten times, instead of typing the number 7 into ten of the spaces, enter it in one of the spaces and press the * key. You can then enter the number of entries of that number, in this example, type in 10. The current list position is then shown with a * instead of a # at the left of the screen.

When the numbers are entered, perhaps the old statistical favourite of the heights of a random sample of 20 people, press EXE to make the statistical calculations.

The screen changes to show the list of results. The values calculated are as follows:

When the list of values has been entered and the statistical functions calculated, you may then use the additions to the MODE menu; XY and Forecast.

Forecast

The Forecast facility allows you to predict when a certain value of Y will occur, i.e. at what period. Conversely, you are able to enter a period number and determine the extrapolated (or interpolated) value of Y at that point on the line.

XY

This option gives you the opportunity to compare two sets of figures. For example, a manufacturer is running a promotional campaign on one premium product and wants to see how the sales of its regular product are affected. The basic process is as follows:

1. Enter the first set of Y values against the fixed x values
2. Press EXE to calculate the statistical functions of the values entered
3. Press MODE twice to view MODE menu
4. Select XY
5. Enter new x values for existing y values
6. Press MODE to view MODE menu
7. Select Forecast
8. Enter one of two variables; Period or Value. Enter period (x value) to determine extrapolated y value or vice versa.

Note that when you select Forecast, if the figures entered present a widely scattered distribution, a message may be displayed; "Poor convergence". In this event, the resulting extrapolations should be viewed in an uncritical light.

APPENDIX A
THE PURE FINANCE PACK

If you have any comments regarding the Pure Finance Pack or this manual, please write to the address below. We cannot guarantee to reply to all letters received, but we would be grateful for your comments and suggestions on this product.

Distributed Information Processing Ltd
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