PV_FV of multiple cash flows.pptx - 1 Present and Future...

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Present and Future Value of Multiple Cash Flow Streams 1
Outline » Types of Cash Flow streams » Valuing Cash Flow streams » Annuity vs Perpetuity 2
Cash Flow Streams » Cash flows often occur more than once » PV & FV so far have been a single cash flow » Important to value multiple cash flow streams » How do we do this? » Use a cash flow table » Take the PV/FV of each individual cash flow, and sum it up 3
Discounted Cash Flow Analysis » DCF: TVM method of valuing a cash flow stream » Take PV or FV of each cash flow » Sum up those cash flows » This is the basic approach to find the price/value of any asset/investment » == » = » 4
Discounted Cash Flow Analysis » How to implement DCF? 1. Set up the time periods 2. Put cash flows in respective time periods 3. Discount (or compound) each cash flow 4. Sum up the discounted cash flows » Timing correctly is important 5
Discounted Cash Flow Analysis: PV Ex » Purchase an asset that pays out $100 over 5 years and has a discount rate of 8%. How much is this asset worth?

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