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Unformatted text preview: 2)1 = 178.57
Year 2 CF: 400 / (1.12)2 = 318.88
Year 3 CF: 600 / (1.12)3 = 427.07
Year 4 CF: 800 / (1.12)4 = 508.41
Total PV = 178.57 + 318.88 + 427.07 + 508.41 =
1432.93 Multiple Cash Flows  PV Example
1 continued
• Calculator Approach
• Year 1 CF: N = 1; I/Y = 12; FV = 200; CPT PV =
178.57
• Year 2 CF: N = 2; I/Y = 12; FV = 400; CPT PV =
318.88
• Year 3 CF: N = 3; I/Y = 12; FV = 600; CPT PV =
427.07
• Year 4 CF: N = 4; I/Y = 12; FV = 800; CPT PV = 508.41
• Total PV = 178.57 + 318.88 + 427.07 + 508.41 =
1432.93 Multiple Cash Flows – PV
Example 2
• You are considering an investment that will
pay you $1000 in one year, $2000 in two
years and $3000 in three years. If you
want to earn 10% on your money, how
much would you be willing to pay? Multiple Cash Flows – PV Example
2 continued
• Formula Approach
•
•
•
• PV = 1000 / (1.1)1 = 909.09
PV = 2000 / (1.1)2 = 1652.89
PV = 3000 / (1.1)3 = 2253.94
PV = 909.09 + 1652.89 + 2253.94 = 4815.93 • Calculator Approach
•
•
•
• N = 1; I/Y = 10; FV = 1000; CPT PV = 909.09
N = 2; I/Y = 10; FV = 2000; CPT PV = 1652.89
N = 3; I/Y = 10; FV = 3000; CPT PV = 2253.94
PV = 909.09 + 1652.89 + 2253.94 = 4815.93 Multiple Uneven Cash Flows –
Using the Calculator
• See the cash flow buttons on your calculator
• Labels on the keys / arguments to the
functions will be:
•
•
•
• CF for cash flow
F for frequency
NPV for net present value
IRR for the interest rate Problem: Decisions, Decisions
• Your broker calls you and tells you that he has an
investment opportunity. If you invest $100 today, you will
receive $40 in one year and $75 in two years. If you
require a 15% return on investments of this risk, should
you take the investment?
• Calculator entry:
• CF0 = 0
• CF1 = 40 (F1=1)
• CF2 = 75 (F2=1)
• I = 15
• CPT NPV = 91.49 • So answer = no. The broker is charging more than
you would be willing to pay. Problem  Saving For Retirement
• You are offered the opportunity to put
some money away for retirement. You will
receive fiv...
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This document was uploaded on 02/06/2014.
 Fall '14

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