lec3_PV_Blackboard

lec3_PV_Blackboard - Features of the PV Model Future Value...

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Features of the PV Model Future Value vs. Present Value PV and Wealth Sensitivity of PV to r Consistency PV and Income
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Future Value Present Value 1 2 3 $ 1 2 3 $
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( or, I’m not a lazy good-for-nothing!) If NPV claim to cash Potential cash command over G & S Command over G & S wealth NPV is one means of measuring wealth
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Sensitivity of Present Value to r r = 5% -9,000 7,200 6,720 6,240 1 2 3 Chevy PV’s = -9,000(1) + 7,200(.952) + 6,720(.907) +6,240(.864) = -9,000 + 6,854 + 6,095 + 5,391 Σ PV’s = -9,000 + 18,340 NPV = 9,340
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-13,800 8,160 8,640 9,120 1 2 3 Mazda PV’s = -13,800(1) + 8,160(.952) + 8,640(.907) +9,120(.864) = -13,800 + 7,768 + 7,836 + 7,880 ΣPV’s = -13,800 + 23,484 NPV = 9,684 Decision: Choose __________
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Other things the same, the higher r, the lower the PV of any promised cash flow. The lower r, the higher the PV of any promised cash flow. Why?
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This note was uploaded on 05/24/2008 for the course ACC 203 taught by Professor Choi during the Spring '08 term at NYU.

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lec3_PV_Blackboard - Features of the PV Model Future Value...

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