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
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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...
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