2 df 1 1 r t download free ebooks at bookbooncom 10

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: of return on equivalent investment alternatives in the capital market. (2) DF = 1 (1  r ) t Download free ebooks at bookboon.com 10 Corporate Finance Present value and opportunity cost of capital Where r is the discount rate and t is the number of years. Inserting the discount factor into the present value formula yields: (3) PV = Ct (1  r) t Example: - What is the present value of receiving €250,000 two years from now if equivalent investments return 5%? PV = - Ct (1  r) t €250,000 1.05 2 € 226,757 Thus, the present value of €250,000 received two years from now is €226,757 if the discount rate is 5 percent. From time to time it is helpful to ask the inverse question: How much is €1 invested today worth in the future?. This question can be assessed with a future value calculation. Please click the advert what‘s missing in this equation? You could be one of our future talents maeRsK inteRnationaL teChnoLogY & sCienCe PRogRamme Are you about to graduate as an engineer or geoscientist? Or have yo...
View Full Document

This note was uploaded on 10/26/2012 for the course 19 19 taught by Professor - during the Spring '12 term at Sunway University College.

Ask a homework question - tutors are online