topic 3 - NPV and the time value of money Learning...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
Learning objectives Understand the time line and distinguish Cash inflow and outflow Value Cash flows at different points of time Net Present Value of a stream of NPV and the time value of money
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Prescribe book Berk,J. ,Demarzo,P. and Harford,J.,2009, Fundamentals of Corporate Finance , Pearson Eduation, Chapter 4.
Background image of page 2
The time line Example You lend money to your friend, and he promises to make 2 payments of $10,000 at the end of each of the next 2 years. Date 0 1 2 Year 1 Year 2 Cash Flow 0 Tod ay 10,00 0 End Yr2 10,000 End Yr1, begin Yr2
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Distinguishing Cash Inflows from Outflows Cash inflows: Cash flows received are positive cash flows Cash outflows: Cash flows paid out are negative cash flows Example: You lend your friend $10,000 and he has agreed to pay back in 2 installments of $6000 at the end of each of the next two years Time line
Background image of page 4
Various time periods Example You have to pay tuition of $10,000 per year for the next 4 years. The tuition payments must be made in equal installments of $5000 every 6 months. What Date Cash Flow 3 1/2 4 Year 4 $5,000 $5,000 $5,000 Year 1 Year 2 1 1/2 2 $5,000 $5,000 $5,000 $5,000 $5,000 $0 0 1/2 1 Year 3 2 1/2 3
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Valuing Cash Flows at Different Points in Time Rule 1: it is only possible to compare and combine values at the same point in time
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 16

topic 3 - NPV and the time value of money Learning...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online