lecture06s[1]

# lecture06s[1] - Discounted Cash Flow Valuation 1 Agenda...

This preview shows pages 1–9. Sign up to view the full content.

Discounted Cash Flow Valuation 1

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Agenda Continue Annuities and Perpetuities Growing Annuities and Perpetuities Comparing Rates: The Effect of Compounding Loan Types and Loan Amortization 2
Finding the Rate Your friend wants to borrow \$2,000 from you and promises to repay you \$500 every year for 5 years. Is this a good deal? If the discount rate is 8% what is the NPV? -2,000+(500/0.08)*[1-1/(1.08) 5 ]=-3.64 If the discount rate is 7% what is the NPV? N=5, I/Y=7, PMT=500, CPT PV=2050.10 NPV=50.10 At what rate is it a ‘fair’ deal? N=5, PMT=500, PV=-2000, CPT I/Y=7.93%

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Saving for College Ann wants to save for her newborn daughter’s college education. Tuition costs will be \$30,000 per year starting 18 years from now. If she makes annual deposits 17 years and the interest rate is 14% how much does she have to deposit every year? 4
Annuity Due You stand to receive payments for a new consulting job. You will receive \$100,000 per year for 4 years. The first payment is made today . If the discount rate is 8%, what is the present value of your compensation? 5

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Growing Annuity Cash flows in business are likely to grow over time, due to real growth or inflation. A growing annuity is an annuity with payments that grow over time. The payments are: C, C(1+g), C(1+g) 2 , … PV=C/(1+r)+ C(1+g)/(1+r) 2 + +C(1+g) 2 /(1+r) 3 +… PV=C[1-((1+g)/(1+r)) t ]/(r-g)
Growing Annuity Stuart has been offered a job that will pay him \$80,000 one year from now. Subsequent to that his salary will increase by 9% until his retirement in 40 years. What is the PV of his lifetime salary at a 20% discount rate.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Growing Perpetuity A growing annuity that last forever is a
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern