Beruflich Dokumente
Kultur Dokumente
Time Value of
Money: An
Introduction
3-5
Copyright
Copyright ©©
2012 Pearson
2009 Education.
Pearson Prentice Hall. All rights reserved. 3-5
3.1 Cost-Benefit Analysis
Execute:
• The benefit of the transaction is $1,500 today.
• The costs are (300 lbs.) $3/lbs. = $900 today
for the shrimp, and $100 today for delivery, for a
total cost of $1,000 today.
• If you are certain about these costs and benefits,
the right decision is obvious:
• You should seize this opportunity because the
firm will gain: $1,500 - $1,000 = $500
Execute:
• The benefit of the transaction is $1,800 today.
• The costs are (500 lbs.) $4/lbs. = $2,000 today
for the shrimp, and $150 today for delivery, for a
total cost of $2,150 today.
• If you are certain about these costs and benefits,
the right decision is obvious:
• You should pass up this opportunity because the
firm will lose: $1,800 - $2,150 = -$350
Execute:
• Using the competitive market prices we have:
– (200 barrels) × ($90/barrel today) = $18,000
today
– (3,000 pounds of copper) × ($3.50/pound
today) = $10,500 today
• The value of the opportunity is the value of the oil
plus the value of the copper less the cost of the
opportunity, $18,000 + $10,500 - $25,000 =
$3,500 today. Because the value is positive, we
should take it.
Copyright © 2012 Pearson Education.
3-31
Example 3.3
Applying the Valuation Principle
Evaluate:
• Since we are transacting today, only the current prices in a
competitive market matter.
• Our own use for or opinion about the future prospects of oil
or copper do not alter the value of the decision today.
• This decision is good for the firm, and will increase its value
by $3,500.
Execute:
• If the launch is delayed to 2006, revenues will
drop by 35% of $3 billion, or $1.05 billion, to
$1.95 billion.
• To compare this amount to revenues of $3 billion
if launched in 2005, we must convert it using the
interest rate of 6%:
$1.95 billion in 2006 ÷ ($1.06 in 2006/$1 in 2005) =
$1.840 billion in 2005
• Therefore, the cost of a delay of one year is
$3 billion - $1.840 billion = $1.160 billion
Solution:
Plan:
• First set up your timeline. The cash flows for this
bond are represented by the following timeline:
15, 000
PV 10
$8,375.92 today
1.06
Given: 10 6 0 15,000
-
Solve for:
8,375.92
Excel Formula: =PV(RATE,NPER, PMT, FV) = PV(0.06,10,0,15000)
Solution:
Plan:
• First set up your timeline. The cash flows for the loan are
represented by the following timeline:
• Thus, XYZ Company will be able to repay the loan with its
expected $2 million cash flow in five years. To determine the
value today, we compute the present value using Eq. 3.2 and
our interest rate of 4%.
Given: 5 4 0 2,000,000
Solution
Plan:
• First set up your timeline. The cash flows for this
bond are represented by the following timeline:
20, 000
PV 20
$7,537.79 today
1.05
Given: 20 5 0 20,000
Solve for: -7,357.79
Excel Formula: =PV(RATE,NPER, PMT, FV) = PV(0.05,20,0,20000)