148 part 2 important financial concepts the following

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Unformatted text preview: tion 2794.90 Braden Company, as we have noted, wants to find the present value of a 5-year ordinary annuity of $700, assuming an 8% opportunity cost. Table Use The present value interest factor for an ordinary annuity at 8% for 5 years (PVIFA8%,5yrs), found in Table A–4, is 3.993. If we use Equation 4.16, $700 annuity 3.993 results in a present value of $2,795.10. Calculator Use Using the calculator’s inputs shown at the left, you will find the present value of the ordinary annuity to be $2,794.90. The value obtained with the calculator is more accurate than those found using the equation or the table. Spreadsheet Use The present value of the ordinary annuity also can be calculated as shown on the following Excel spreadsheet. Finding the Present Value of a Perpetuity perpetuity An annuity with an infinite life, providing continual annual cash flow. A perpetuity is an annuity with an infinite life—in other words, an annuity that never stops providing its holder with a cash flow at the end of each year (for example, the right to receive $500...
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This document was uploaded on 03/03/2014 for the course MBA BMMF at Open University Malaysia.

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