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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
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
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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