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# MGT160 Slides Week - MGT160 Week 3 Week 3 Review Chapter 5 Future Value of Multiple Payments 1-1 Future Value Multiple Cash Flows Example 5.1 You

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1-1 MGT160 – Week 3 • Week 3 – Review – Chapter 5 Future Value of Multiple Payments

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1-2 Future Value: Multiple Cash Flows Example 5.1 • You think you will be able to deposit \$4,000 at the end of each of the next three years in a bank account paying 8 percent interest. • You currently have \$7,000 in the account. How much will you have after 3 years? • How much will you have after 3 years? Example 1 Time Line 0 1234 \$7000 \$4000 \$4000 \$4000 ? 8% 8% 8% 8%
1-3 Future Value: Multiple Cash Flows Example 5.1 - Formulas • Find the value at end of year 3 of each cash flow and add them together cash flow and add them together. – Year 0: FV = \$7,000(1.08) 3 = \$ 8,817.98 – Year 1: FV = \$4,000(1.08) 2 = \$ 4,665.60 – Year 2: FV = \$4,000(1.08) 1 = \$ 4,320.00 – Year 3: value = \$ 4,000.00 – Total value in 3 years = \$21,803.58 Future Value: Multiple Cash Flows Example 5.1 - Formulas • What would the value be in 5 years?

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1-4 Example 1 Time Line 0 1234 56 \$7000 \$4000 \$4000 \$4000 8% 8% 8% 8% \$0 \$0 ? Future Value: Multiple Cash Flows Example 5.1 - Formulas • What would the value be in 5 years? – Total value in 3 years = \$21,803.58 – FV = \$21,803.58(1.08) 2 =\$25,431.70
1-5 Present Value: Multiple Cash Flows Example 5.3 –You are offered an investment that will pay • \$200 in year 1, • \$400 the next year, • \$600 the following year, and \$800 at the end of the 4 th year • \$800 at the end of the 4 year. • You can earn 12% on similar investments. • What is the most you should pay for this one? Example 5.3 Time Line 0 1 234 Time (years 12% 12% 12% 12% 200 400 600 800 178.57 318.88 = 1/(1 12 3 x (years) = 1/(1.12) 2 x 5-10 427.07 508.41 1,432.93 = 1/(1.12) 4 x = 1/(1.12)

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1-6 Present Value: Multiple Cash Flows Example 5.3 - Formula Find the PV of each cash flow and add them: – Year 1 CF: \$ 200 / (1.12) 1 = \$ 178.57 – Year 2 CF: \$ 400 / (1.12) 2 = \$ 318.88 Year 3 CF: \$ 600 / (1 12 3 = \$ 427 07 – Year 3 CF: 600 / (1.12) = \$ 427.07 – Year 4 CF: \$ 800 / (1.12) 4 = \$ 508.41 – Total PV = \$ 1,432.93 • Clear all: Multiple Uneven Cash Flows Using the TI BAII’s Cash Flow Worksheet – Press ' – Then & – Then z CF 0 is displayed as 0.00 • Enter the Period 0 cash flow If an outflow press S to change – If an outflow, press to change the sign • To enter the figure in the cash flow register, press !
1-7 TI BAII+: Uneven Cash Flows • Press the down arrow # to move to the next cash flow registe register • Enter the cash flow amount, press ! and # to move to the cash flow counter ( Fnn ) • The default counter value is “ 1

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## This note was uploaded on 12/18/2011 for the course MGT 160 taught by Professor Staff during the Fall '08 term at UC Davis.

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MGT160 Slides Week - MGT160 Week 3 Week 3 Review Chapter 5 Future Value of Multiple Payments 1-1 Future Value Multiple Cash Flows Example 5.1 You

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