# 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
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
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