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Unformatted text preview: u already graduated? If so, there may be an exciting future for you with A.P. Moller - Maersk. w ww.maersk.com/mitas Download free ebooks at bookboon.com 11 Corporate Finance Present value and opportunity cost of capital 3.3 Future value The future value (FV) is the amount to which an investment will grow after earning interest. The future value of a cash flow, C0, is: (4) FV C 0 ˜ (1  r ) t Example: – What is the future value of €200,000 if interest is compounded annually at a rate of 5% for three years? FV - €200,000 ˜ (1  .05) 3 €231,525 Thus, the future value in three years of €200,000 today is €231,525 if the discount rate is 5 percent. 3.4 Principle of value additivity The principle of value additivity states that present values (or future values) can be added together to evaluate multiple cash flows. Thus, the present value of a string of future cash flows can be calculated as the sum of the present value of each future cash flow: (5) PV C3 C1 C2    .... 1 2 (1  r ) (1  r ) (1  r ) 3 Ct ¦ (1  r ) t Download free ebooks at bookboon.com 12 Corporate Finance Present value and opportunity cost of capital Example: - The principle of value additivity can be applied to calculate the present value of t...
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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.

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