Beruflich Dokumente
Kultur Dokumente
What Companies Do
Take the Money and Park?
Facing a huge projected 2009 budget deficit, Chicago Mayor Richard
Daley struck a deal to lease the citys 36,000 parking meters to an
investor group that included Morgan Stanley. Morgan Stanley and its
partners would pay Chicago $1.2 billion up front; in return, they
would collect revenue from parking meters for the next 75 years.
Was it an unbelievable deal for the city of Chicago or for Morgan
Stanley and its partners? To answer that question, you must know
how to compare an up-front payment with a long-term stream of
cash payments. This chapter will show you how to make that
comparison.
6/01/2014
Future Value
Future Value: The value of an investment made
today measured at a specific future date using
compound interest.
FVn = PV x (1+r)n
Interest rate
Future Value
depends on:
Number of periods
Compounding interval
4
End of Year
Compounding
Year 1:
FV1 = $214
Year 2:
FV2 = $228.98
Year 3:
FV3 = $245.01
Year 4:
FV4 = $262.16
6/01/2014
15%
10%
5%
0%
Periods
7
Present Value
Present value: The value today of a cash flow to be
received at a specific date in the future, assuming
an opportunity to earn interest at a specified rate.
1
FV1 = $200
PV = $186.92
FV2 = $200
FV3 = $200
FV4 = $200
End of Year
PV = $174.69
PV = $163.26
PV = $152.58
6/01/2014
1.00
0%
0.75
0.5
5%
10%
0.25
15%
20%
0 2 4 6 8 10 12 14 16 18 20 22 24
Periods
10
Annuity
11
Future
Value
$1,000
0
$1,000
2
$1,000
3
$1,000
4
$1,000
5
End of Year
Present
Value
Discounting
12
6/01/2014
$1,000
$1,000
$1,000
$1,000
$1,000
5
End of Year
$1,000
1
$1,000
2
$1,000
3
$1,000
4
End of Year
15
6/01/2014
$1,000
$1,000
$1,000
$1,000
5
$1,000
End of Year
$947.87
$898.45
$851.61
$807.22
$765.13
16
$1,000
$1,000
$1,000
$1,000
$1,000
End of Year
$1,000.00
$947.87
$898.45
$851.61
$807.22
17
FV
$6,413.8
$4,326.4
$3,120.0
-$10,000
0
$2,884.6
$3,000
$5,000
$4,000
$3,000
$2,000.0
End of Year
$4,622.8
PV
$5,271.7
$3,556.0
$2,564.4
$1,643.9
Discounting
18
6/01/2014
19
$1,000
$1,000
$1,000(1+0.02)1 $1,000(1+0.02)2
$1,020
$1,040.4
$1,000(1+0.02)3
$1,061.2
Growing Perpetuity
CF1 = $1,000
r = 7% per year
g = 2% per year
20
continuous compounding
6/01/2014
Quarterly compounding:
Continuous compounding:
22
Effective
annual rate
23
Annual
percentage
yield (APY)
24
6/01/2014
25
26