Part_1_Time_Value_of_Money__Singh_

Part_1_Time_Value_of_Money__Singh_ - PAR 1 TIME VALUE OF...

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PAR 1 TIME VALUE OF MONE1{ 1 Single Cash Flow 1.1 Present Value Problem. A single cash tlO\\7 of $1,000.00 \-yill be received in 5 periods. For this cnsh 11O\v, the appropriate discoU!lt rate I period is 6.0%. What is the present value of this single cash flow') Solution Strategy. We will calculate the present value ofiiJis single cash flO\'v in three equivalent ways. First, \ve will calculate the present value using a time line. vvhere each column corresponds to a period of calendar time. Second. we use a formula for the present value. Third, we Lise Excel's PV I'ul1clion for the present value. FIGURE 1.1 Spreadsheet for Single Cash Flow - Present Value. 4 5 $0 00 $1 ,000 00 1>000 $74726 $000 1,000 5 :fi1 00000 6.0%. Present Value using il Time Urc~ Period .0:. ., 1'--__ 2 Cash Flo'vv-, . :1,0.00:li0 00 'h0 00 Present "-ialue 01 Each I.:.ash Flow $0.00 .resent Value "j"l~t . Inputs Single Cash F!'c'N Discount Rate i Period Number of Penods How To Build Your Own Spreadsheet Model. I. Inputs. Enter the- inputs in the range B4:B6. 2. Present Value using a Time Line. Creale <l time line from period 0 to period 5. enter the single cash tlo\\ in period 5. Calculate the present value of each cash 11l1'v\ and sum the present values as !(l110\\S. o pcriorJ. Enter U. L 2. .... :S. in the range Bt);(;<). o Cash Fkws. Enter $0.00 in cell B i 0 and copy it to the range C to: FlO. Enter =134 in eeli GIG.
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o Present Value of Each Cash Flo" = (Cash flo\\) / «(1 + Discount Rate/Period) 1\ Period). Enler =BIO/«1+$B$5)"B9) in cell Bll and cop:' it across. The S signs in $BS5 lock the column as B and the row as S when copying. o Present Value = Sum over all periods of the Present Value c" Each Cash Flow. Enter =StJl\'l(Bl1:Gl1) in cell 1312. 3. Present Value using the Formula. For (\ single cash [lov,. the formula is Present Value = (Cash Flow) / eel + Discount Rate/Period) Period). Enter =B4/«1+B5)"B6) in cell HIS 4. Present Value using the PV Function. The Excel PV function can be used to calculate the present value or a singk cash 110w. the presenl value or an annuity, or the present value a bond. For a single cash !low. the format is =-PV(lJiscoullt Rate! Period. NU::lber of [)eriods. O. Single Cac,h F!l.m) Enter =-I>V(B5,B6,O,B4) in cell R~18. The PreserH Value of this Single Cash Flow is \ . Notice yOU get the saine answer all three ways: using the time lint\ using the formula. or using the PV function! 1.2 Future Value Problem. A single cash flow of$747.25 is available no\\o (in period 0). For this cash tlovi, the appropriate discount rate / period is 6.0%. What is the period 5 fulure value of this single cash 110\0\'1 Solution Strategy. We will calculate the future value of the single cash flow in three equivalent ways. First, we will calculate the future value using a time line, where cacb column corresponds to a period of calendar time. Second. \\Ie usc a fonnula for the future value. Third. \VC use Fxccl's FV function fQr the rlllur·~ value.
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This note was uploaded on 09/10/2010 for the course IAH 001 taught by Professor Wang during the Spring '10 term at Michigan State University.

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Part_1_Time_Value_of_Money__Singh_ - PAR 1 TIME VALUE OF...

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