1. PING Inc. is evaluating a longterm investment in an additional production facility to be
built adjacent to their existing factory. They have estimated the following cash flows for
the project. PING has an opportunity cost of capital of 10%. Should PIN
VALUATION
In The Theory of Investment Value, written over 50 years
ago, John Burr Williams set forth the equation for value:
The value of any stock, bond or business today is determined
by the cash inflows and outflowsdiscounted at an
appropriate interest
VALUATION
In The Theory of Investment Value, written over 50 years
ago, John Burr Williams set forth the equation for value:
The value of any stock, bond or business today is determined
by the cash inflows and outflowsdiscounted at an
appropriate interest
FIN 3113 Finance
Time Value of Money
Present Value of an Annuity
15.
What is the present value of a 3 year, $100 annuity if the discount rate is 6%?

0

1
$100

2
$100
[
PV
= (100)
100 PMT

0
94.34
89.00
83.96
1 

3
$100
1
(1.06)3
0.06
6 I/Y

1
$10
FIN 3113: Finance
Time Value of Money Example Problems
1.
2.
You borrow $4000 from the bank for 5 years at an annual interest rate of 12%. Determine
the payments you will be required to make at the end of each year and month.
4000 +/ PV
5
N
12 I/Y
CPT PM
1. Eastern Electric currently pays a dividend of about $1.64 per share and sells for $27 a share.
a.
If investors believe the growth rate of dividends is 3% per year, what rate of return do they
expect to earn on the stock?
b. If investors required return
TIME VALUE OF MONEY
DO I HAVE AN ANNUITY (series of equal cash flows)?
NO ( One amount problem)
YES (Annuity problem)
Identify the variables:
N
I/Y
Identify the variables: type of problem is determined by PV or FV
PV
FV
PV
N
I/Y
%
N
I/Y
1. Determine the #
Alternative Definitions of OCF
A proposed new project has projected sales of $122,000, costs of $56,000, and depreciation of $12,500.
The tax rate is 30 percent. Calculate operating cash flow using the four different approaches.
Expansion Project
Quad Ent
FIN 3113: Finance
Time Value of Money Example Problems
1.
You borrow $4000 from the bank for 5 years at an annual interest rate of 12%. Determine
the payments you will be required to make at the end of each year and month.
2.
What would you pay for an inv