3 - Chapter 6 Discounted Cash Flow Valuation FINA1003...

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FINA1003 Corporate Finance Faculty of Business and Economics University of Hong Kong Dr. Tao Lin Chapter 6: Discounted Cash Flow Valuation
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Topics Covered PV and FV of multiple cash flows Annuity and perpetuity Loan amortization Annuity due and perpetuity due Growing annuity and perpetuity Interest Rates: APR, APY and EAR Loan types and special financing
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Example Assume that the cash flows from the construction and sale of an office building is as follows. Given a 7% required rate of return, find the present value and future value of the project. 000 , 300 000 , 100 000 , 150 2 Year 1 Year 0 Year
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PV of Multiple Cash Flows t=0 t=2 t=1 -$150,000 -$100,000 $300,000 $280,374 $180,374 $300,000 $168,574
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PV of Multiple Cash Flows t=0 t=2 t=1 -$150,000 -$100,000 $300,000 -$150,000 $262,032 $300K/1.07 2 -$93,458 -$100K/1.07
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FV of Multiple Cash Flows t=0 t=2 t=1 -$150,000 -$100,000 $300,000 -$160,500 -$260,500 -$150,000 -$278,735
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