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Lecture 01

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8 views

Lecture 01

Uploaded by

Are Eba
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
You are on page 1/ 6

COMPUTING THE PRESENT VALUE

Discount rate 10%

Present
Year Cash flow value
1 100 90.91
2 100 82.64
3 100 75.13
4 100 68.30
5 100 62.09

Net present value


Summing cells C5:C9 379.08
Using Excel's NPV function $379.08
Using Excel's PV function $379.08
COMPUTING THE PRESENT VALUE
In this example the cash flows are not equal
Either discount each cash flow separately or use
Excel's NPV function
Excel's PV doesn't work for this case

Discount r 10%

Cash Present Present value


Year flow value of each cash flow
1 100 90.91
2 200 165.29
3 300 225.39
4 400 273.21
5 500 310.46

Net present value


Summing cells C5:C9 1065.26
Using Excel's NPV function $1,065.26
COMPUTING THE NET PRESENT VALUE
Discount rate 10%

Present
Year Cash flow value
0 -250 -250.00
1 100 90.91
2 100 82.64
3 100 75.13
4 100 68.30
5 100 62.09

Net present value


Summing cells C5:C10 129.08
Using Excel's NPV function $129.08
COMPUTING THE VALUE OF A FINITE ANNUITY
Periodic payment, C 1,000 PVT=PMT*(1+R)^-N)/R
Number of future periods paid, n 5
Discount rate, r 12% PV (1-(1+R)^-N)/R*P
Present value of annuity
Using formula 3,604.78
Using Excel's PV function $3,604.78

Annuity
Period payment
1 1,000.00
2 1,000.00
3 1,000.00
4 1,000.00
5 1,000.00

Present value using Excel's NPV function 3,604.78


COMPUTING THE VALUE OF AN INFINITE ANNUITY
Periodic payment, C 1,000
Discount rate, r 12%
Present value of annuity 8,333.33

PV PMT/R
INTERNAL RATE OF RETURN
Year Cash flow
0 -800
1 200
2 250
3 300
4 350
5 400

Internal rate of return 22%

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