Beruflich Dokumente
Kultur Dokumente
Discounted Cash
Flow Valuation
1
McGraw-Hill/Irwin
1-2 5-2
1-3 5-3
Chapter Outline
Future and Present Values of Multiple
Cash Flows
Valuing Level Cash Flows: Annuities
and Perpetuities
Comparing Rates: The Effect of
Compounding Periods
Loan Types and Loan Amortization
3
1-4 5-4
1-5 5-5
1-6 5-6
Example 2 Continued
How much will you have in 5 years if
you make no further deposits?
First way:
FV = $500(1.09)5 + $600(1.09)4 =
$1,616.26
1-7 5-7
1-8 5-8
$100
$300
$136.05
$349.92
$485.97
8
1-9 5-9
1-10
5-10
200
400
600
800
178.57
318.88
427.07
508.41
1,432.93
10
1-11
5-11
11
1-12
5-12
1-13
5-13
1-14
5-14
Perpetuity: PV = C / r
Annuities:
1
1
(1 r ) t
PV C
r
(1 r ) t 1
FV C
14
Annuity Sweepstakes
Example
1-15
5-15
1-16
5-16
Buying a House
You are ready to buy a house and you have
$20,000 for a down payment and closing costs.
Closing costs are estimated to be 4% of the
loan value. You have an annual salary of
$36,000 and the bank is willing to allow your
monthly mortgage payment to be equal to 28%
of your monthly income. The interest rate on the
loan is 6% per year with monthly compounding
(.5% per month) for a 30-year fixed rate loan.
How much money will the bank loan you? How
much can you offer for the house?
16
1-17
5-17
1-18
5-18
1-19
5-19
19
1-20
5-20
.75 = 1 1 / 1.015t
1 / 1.015t = .25
1 / .25 = 1.015t
t = ln(1/.25) / ln(1.015) = 93.111 months =
7.75 years
1-21
5-21
.136161869 = 1 1/1.05t
1/1.05t = .863838131
1.157624287 = 1.05t
t = ln(1.157624287) / ln(1.05) = 3 years
21
1-22
5-22
22
1-23
5-23
1-24
5-24
1-25
5-25
25
1-26
5-26
Annuity Due
You are saving for a new house and
you put $10,000 per year in an account
paying 8%. The first payment is made
today. How much will you have at the
end of 3 years?
FV = $10,000[(1.083 1) / .08](1.08) =
$35,061.12
26
1-27
5-27
10000
10000
10000
32,464
35,016.12
27
1-28
5-28
Table 5.2
28
1-29
5-29
Perpetuity formula: PV = C / r
Current required return:
$40 = $1 / r
r = .025 or 2.5% per quarter
1-30
5-30
1-31
5-31
31
Computing APRs
1-32
5-32
32
Things to Remember
1-33
5-33
1-34
5-34
EAR - Formula
m
APR
EAR 1
1-35
5-35
35
Decisions, Decisions II
1-36
5-36
Second account:
EAR = (1 + .053/2)2 1 = 5.37%
Decisions, Decisions II
Continued
1-37
5-37
Second Account:
Semiannual rate = .053 / 2 = .0265
FV = $100(1.0265)2 = $105.37
1-38
5-38
m
APR m (1 EAR)
-1
38
APR - Example
1-39
5-39
1/12
APR 12 (1 .12)
1 .113865515
or 11.39%
39
1-40
5-40
1-41
5-41
1-42
5-42
1-43
5-43
Types of Loans
1-44
5-44
Amortized Loan:
1-45
5-45
1-46
5-46
1-47
5-47
Beg.
Balance
Total
Payment
Interest
Paid
Principal
Paid
End.
Balance
5,000.00
1,509.60
400.00
1,109.60
3,890.40
3,890.40
1,509.60
311.23
1,198.37
2,692.03
2,692.03
1,509.60
215.36
1,294.24
1,397.79
1,397.79
1,509.60
111.82
1,397.78
.01
6,038.40 1,038.41
4,999.99
Totals
47
1-48
5-48
Comprehensive Problem
An investment will provide you with $100 at the end of
each year for the next 10 years. What is the present
value of that annuity if the discount rate is 8% annually?
What is the present value of the above if the payments
are received at the beginning of each year?
If you deposit those payments into an account earning
8%, what will the future value be in 10 years?
What will the future value be if you open the account with
$1,000 today, and then make the $100 deposits at the
end of each year?
48