Copy of FIN3210Chapter5.xlsx - Chapter 5 – Discounted Cash Flow Valuation Unequal Cash Flows Suppose you are going to receive \$10,000 in one year

# Copy of FIN3210Chapter5.xlsx - Chapter 5 – Discounted...

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Chapter 5 – Discounted Cash Flow Valuation Unequal Cash Flows Year 1 \$ 10,000 Year 2 \$ 15,000 Year 3 \$ 15,000 Year 5 \$ 20,000 Rate 10% Year Present value 1 \$ 10,000 \$9,090.91 2 \$ 15,000 \$12,396.69 On a Mac: 3 \$ 15,000 \$11,269.72 COMMAND T = F4 4 \$ - \$0.00 5 \$ 20,000 \$12,418.43 Value today \$45,175.75 OR: NPV function Value today \$45,175.75 Suppose you are going to receive \$10,000 in one year, \$15,000 in two years and three years, and \$20,0 the appropriate interest rate is 10 percent, what is the value of the cash flows today?
4 000 in five years. If
Perpetuities Perpetuity payment \$ 75,000 Interest rate 6% Present value \$ 1,250,000.00 Perpetuities Perpetuity payment \$ 75,000 Years until first pmt 9 <-- use 8, bc its always one period out Interest rate 6% Present value \$ 1,250,000.00 Value today \$784,265.46 Growing Perpetuities Perpetuity payment \$ 10,000 Growth rate 2.50% Interest rate 8% Present value \$ 181,818.18 Growing Perpetuities You will receive \$75,000 per year forever with the first payment occurring one year from today. If the percent, what is the value of the perpetuity today? Suppose the first perpetuity payment in the previous problem is exactly 9 years from today. What is th flows today You will receive perpetuity with a payment of \$10,000 next year. The payment will grow by 2.5 perce If the appropriate discount rate is 8 percent, what is the value of the cash flows today?
Perpetuity payment \$ 1,000,000 Growth rate -8.00% Interest rate 13% Present value \$ 4,761,904.76 You want to buy a song catalog. The royalties next year will be \$1 million, and are expected to decrea year indefinitely. If you want a 13 percent return, what is the most you should pay for the catalog?
e discount rate is 6 he value of the cash ent per year forever.
ase by 8 percent per
Annuities Payment \$ 10,000 Years 3 Rate 10% Year Present value 1 \$ 10,000 \$9,090.91 2 \$ 10,000 \$8,264.46 3 \$ 10,000 \$7,513.15 Value today \$ 24,868.52 <-- present value will always be lower than f Or with Excel: Value today \$24,868.52 Take value today and invest: Year 1 Year 2 Year 3 Start \$24,868.52 \$ 17,355.37 \$ 9,090.91 Interest 2,486.85 1,735.54 909.09 Total \$ 27,355.37 \$ 19,090.91 \$ 10,000.00 Withdrawal (10,000.00) (10,000.00) (10,000.00) Amount left \$ 17,355.37 \$ 9,090.91 \$ - Annuity due Suppose the annuity payments of \$10,000 begin today. What is the value of the cash flows now? Suppose you are offered \$10,000 per year for three years. If the discount rate is 10 percent, what is the flows today?
Payment \$ 10,000 Years 3 Rate 10% Value today \$27,355.37 <-- add 1 in "type" it makes it an annuity due Future Value of Annuities Payment \$ 5,000 Years 30 Rate 11% Future value \$995,104.39 Future Value of Annuities Due Suppose the first payment on the previous annuity is today. What is the value of your retirement accou Payment \$ 5,000 Years 30 Rate 11% Future value \$1,104,565.87 <-- future value of AD is always higher than future value of A Annuities You are planning to save \$5,000 per year for the next 30 years toward retirement with the first paymen year from today. If you can earn an 11 percent interest rate, what will the value of your retirement port You will receive \$50,000 per year for 10 years with the first payment occurring 7 years from today. If discount rate is 9 percent, what is the value of the cash flows today?
Payment \$ 50,000 Number of payments 10 Years until first payment 7 Interest rate 9% Value at beginning of annuity \$320,882.89 present va Value today \$191,331.98 present value is one period before the first pa Annuity payments Years 40 Future value \$ 1,500,000 Interest rate 11% Amount of deposit \$2,578.09

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