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Present value calculations - MGF301

Present value calculations - MGF301 - Example from...

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Example from Powerpoint Slide 4-18 Time Period Cash Flow PV 0 $8,000 $8,000.00 1 $4,000 $3,703.70 2 $4,000 $3,429.36 Total $15,133.06 discount rate = 8%
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Lottery Example - Comparison of Lump Sum to 26 year p • $7,000,000 paid in 26 payments (over 25 ye Present Value of Payment Received Today: $3,628,451 Present Value of 26 Payments of $7,000,000/26 = $269,231 at 6.255% (Note: First payment is today and then each year for 25 years) Time Period Future Value Present Value 0 $269,231 $269,231 1 $269,231 $253,382 2 $269,231 $238,466 3 $269,231 $224,428 4 $269,231 $211,216 5 $269,231 $198,782 Choice: • $3,628,451 today
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6 $269,231 $187,080 7 $269,231 $176,067 8 $269,231 $165,703 9 $269,231 $155,948 10 $269,231 $146,768 11 $269,231 $138,128 12 $269,231 $129,997 13 $269,231 $122,344 14 $269,231 $115,142 15 $269,231 $108,364 16 $269,231 $101,985 17 $269,231 $95,981 18 $269,231 $90,331 19 $269,231 $85,013 20 $269,231 $80,009 21 $269,231 $75,299 22 $269,231 $70,866 23 $269,231 $66,694 24 $269,231 $62,768 25 $269,231 $59,073 Total $7,000,000 $3,629,064 int rate = 6.255%
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payment stream ears) % interest
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Lottery Example - Comparison of Lump Sum to 20 year paym Choice: • $8,500,000 today • $20,000,000 paid in 20 payments (over 19 yea Present Value of 20 Payments of $1,000,000 (Note: First payment is today and then each year for 19 y Discount Rate = 7.00% Time Period Cash Flow PV 0 $- $- 1 $1,000,000 $934,579 2 $1,000,000 $873,439 3 $1,000,000 $816,298 4 $1,000,000 $762,895 5 $1,000,000 $712,986 6 $1,000,000 $666,342 7 $1,000,000 $622,750 8 $1,000,000 $582,009 9 $1,000,000 $543,934 10 $1,000,000 $508,349 11 $1,000,000 $475,093 12 $1,000,000 $444,012 13 $1,000,000 $414,964 14 $1,000,000 $387,817 15 $1,000,000 $362,446 16 $1,000,000 $338,735
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17 $1,000,000 $316,574 18 $1,000,000 $295,864 19 $1,000,000 $276,508 20 $1,000,000 $258,419 Total $20,000,000 $10,594,014
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ment stream ars) years)
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Perpetuity Example (i.e., payments every year forever)
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