analytics-for-managerial-decision-making

45639 46 present value of an annuity due present

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: scussion, and use the 4% column/20-period row -- $25,000 X 0.45639). 4.6 Present Value of an Annuity Due Present value calculations are also applicable to annuities. Perhaps you are considering buying an investment that returns $5,000 per year for five years, with the first payment to be received immediately. What should you pay for this investment in you have a target rate of return of 10%? The graphic shows that the annuity has a present value of $20,849. Of course, there is a PRESENT VALUE OF AN ANNUITY DUE TABLE (see the appendix) to ease the burden of this calculation ($5,000 X 4.16897 = $20,849). Download free ebooks at bookboon.com 25 Compound Interest and Present Value Analytics for Managerial Decision Making 4.7 Present Value of an Ordinary Annuity Please click the advert Many times, the first payment in an annuity occurs at the end of each period. The PRESENT VALUE OF AN ORDINARY ANNUITY TABLE provides the necessary factor to determine that $5,000 to be received at the end of each year, for a five-year period, is worth only $18,954, assuming a 10% interest rate ($5,000 X 3.79079 = $18,954). The following graphic confirms this conclusion: We will turn your CV into an opportunity of a lifetime Do you like cars? Would you like to be a part of a successful brand? We will appreciate and reward both your enthusiasm and talent. Send us your CV. You will be surprised where it can take you. Send us your CV on www.employerforlife.com Download free ebooks at bookboon.com 26 Compound Interest and Present Value Analytics for Managerial Decision Making 4.8 Electronic Spreadsheet Functions Be aware that most electronic spreadsheets also include functions for calculating present and future value amounts by simply completing a set of predetermined queries.. 4.9 Challenge Your Thinking Many scenarios represent a combination of lump sum and annuity cash flow amounts. There are a variety of approaches to calculating the future or present value for such scenarios. Perhaps the safest approach is to diagram the anticipate...
View Full Document

Ask a homework question - tutors are online