LECTURE3 - TEST 1/ LECTURE 2: TIME VALUE OF MONEY PART I An...

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TIME VALUE OF MONEY PART I An Experiment In the Social Network, the founder of Facebook basically gets $18,000 in start-up money from his partner in exchange for 30% of the company’s profits . How would you value this opportunity? Rate of interest you will earn?, what are the cash flows?, WHEN will you pay?, what’s the risk….where else could I spend money? How do I evaluate the information? (above questions) Our experiment illustrates the idea of the time value of money. A dollar today is not the same thing as a dollar expected tomorrow. The evaluation of future cash flows is a fundamental theme underlying all areas of finance. The concept of time value of money is quantified through the use of Discounted Cash Flow Analysis (DCF) DCF techniques allow us to make an exact dollar value adjustment for time and risk so that we can compare the current “worth” of cash flows arriving at different times and/or having different amounts of risk associated with them. If we add a few definitions, we can move cash flows across time…. DCF Lump Sum Problems A lump sum is a single cash flow at one point in time….also called an amount. We need to define four terms: PV, FV, N, and r.
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This note was uploaded on 01/24/2012 for the course FINA 3000 taught by Professor Laplante during the Spring '08 term at University of Georgia Athens.

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LECTURE3 - TEST 1/ LECTURE 2: TIME VALUE OF MONEY PART I An...

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