548-Week 2 MBA.PM Spring 2010

548-Week 2 MBA.PM Spring 2010 - Present Value Calculations...

Info icon This preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
J. K. Dietrich - GSBA 548 – MBA.PM Spring 2010 Present Value: Calculations and Interpretation Class 3 March 1 (LA) and March 2 (OCC)
Image of page 1

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

View Full Document Right Arrow Icon
J. K. Dietrich - GSBA 548 – MBA.PM Spring 2010 From last classes . . . What should be the goal of financial managers? What do we need to know to pursue goal? How can we assess progress towards that goal? What is a firm’s market value? Market cap? How do we compute them?
Image of page 2
J. K. Dietrich - GSBA 548 – MBA.PM Spring 2010 Overview: Classes 3 to 6 Discounted present value: basic tool given projections of cash flows and discount rate Present value and wealth creation One and multi-period cash flows Patterns in cash flows = formulas Applications to valuation: bonds Application to valuation: fixed assets To be addressed later: equity (stock) cash flows, choosing a discount rate (Class 3 & 4) (Class 6) (Class 5)
Image of page 3

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

View Full Document Right Arrow Icon
J. K. Dietrich - GSBA 548 – MBA.PM Spring 2010 Determinants of Value Cash, Time, Risk determine value Present value analysis deals with the effect of time or timing on value Cash flow estimation is the subject of the next part of the course (classes 5 to 8) Risk is incorporated in the discount rate that we discuss in Part 3 of the course In discussing present value analysis now, we assume that cash flows and discount rates are given
Image of page 4
J. K. Dietrich - GSBA 548 – MBA.PM Spring 2010 Emphasis on Present Values Chapter 4 raises a number of topics relevant to the calculation of present values: Simple versus compound interest Compounding interval Continuous compounding Calculation of number of periods of cash flows to achieve a given present or future value We will not emphasize these issues, we concentrate on basic present and future value calculations
Image of page 5

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

View Full Document Right Arrow Icon
J. K. Dietrich - GSBA 548 – MBA.PM Spring 2010 Present Value of Cash Flows Calculation of present values is key technique to assign values Present value calculations are applications or simplications of two basic formulas: PV of single cash flow = PV of multiple cash flows = t t ) r 1 ( CF + + = = T t 1 t t t ) r 1 ( CF
Image of page 6
J. K. Dietrich - GSBA 548 – MBA.PM Spring 2010 PV of Single Cash Flow Most basic present value calculation; (p. 96, equation.4.4) Example in text one-period discount (p. 88) Multi-period discounting (p. 96, example.4.7) 200 , 10 $ 12 . 1 424 , 11 $ = = PV T T r C PV ) 1 ( + = 938 , 7 $ 7938 . 000 , 10 $ 08 . 1 1 000 , 10 $ 3 = × = = PV
Image of page 7

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

View Full Document Right Arrow Icon
J. K. Dietrich - GSBA 548 – MBA.PM Spring 2010 Future Values Future value of an investment (p. 92, equation 4.3):
Image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern