...Presentvalue is where the value on a set date of a future payment is discounted to reflect the time value of money and other factors. This can also apply to a series of future payments. Presentvalue calculations are commonly utilized in business and economics to provide a way to compare cash flows at different times. Presentvalue can be described as the current worth of a future sum of money or stream of cash flows given a specified rate of return. (http://www.getobjects.com) Future cash flows are discounted at the discount rate. The higher the discounted rate, the lower the presentvalue of the future cash flows. Determining what the appropriate discount rate is, is important to correctly place valuefuture cash flows.
The PresentValue of an Ordinary Annuity is the value of a stream of promised or expected future payments that have been discounted to a single equivalent value today. It is extremely useful for comparing two separate cash flows that differ in some way.
PresentValue of an Ordinary Annuity can also be looked at as the amount you have to invest today at a specific interest rate so that when you withdraw an equal amount...

...cost $60, annual benefits $20, useful life 7 years
Which alternative is preferable if i = 12%?
a) PV = $173.84
b) PV = $31.28
Select option a
7. Project A and B have first costs of $10,000 and $18,000, respectively. Project A has net annual benefits of $5,000 during each year of its 5 year useful life, after which it can be replaced identically.
Project B has annual benefits of $6600 during each year of its 10 year life. Usepresent worth analysis, an interest rate of 30% per year and a 10 year analysis period to determine which project to select.
Project A PV = $2767
Project B PV = $2407.20
Select project A
8. The lining of a chemical tank in a certain manufacturing operation is replaced every 5 years at a cost of $7,500. A new type lining is now available which would last 10 years but costs $19,500. The tank needs new lining now and you intend to use the tank for 40 years, replacing linings when necessary. Whit i of 10% compute the present worth of costs of 40 years of service for the 5-year and 10-year linings.
5 year lining PV of costs = $19,347.75
10 year lining PV of costs = $31,025.34
Select 5 year lining
9. A $25,000 20-year loan with a nominal interest rate of 12% compounded monthly is to be repaid in a uniform series of payments of $275 per month (for 240 months). The borrower wants to know how many payments, N, he will have to make until he owes only...

...debts. A sole
proprietor has unlimited liability. Investors in corporations have limited liability. They can lose their investment, but no more.
Chapter 2
How to calculate Presentvalues
Question 6: Perpetuities
An investment costs $1,548 and pays $138 in perpetuity. If the interest rate is 9%, what is the NPV?
Answer
NPV = −1,548 + 138/.09 = −14.67 (cost today plus the presentvalue of the
perpetuity).
Question 7: Growing perpetuities
A common stock will pay a cash dividend of $4 next year. After that, the dividends are expected to increase indefinitely at 4% per year. If the discount rate is 14%, what is the PV of the stream of dividend payments?
Answer
PV = 4/(.14 − .04) = $40.
Question 19: Presentvalues
As winner of a breakfast cereal competition, you can choose one of the following prizes:
a. $100,000 now
b. $180,000 at the end of five years
c. $11,400 a year forever
d. $19,000 for each of 10 years
e. $6,500 next year and increasing thereafter by 5% a year forever.
If the interest rate is 12%, which is the most valuable prize?
Answer
a. PV = $100,000.
b. PV = $180,000/1.125 = $102,136.83.
c. PV = $11,400/0.12 = $95,000.
d.
e. PV = $6,500/(0.12 0.05) = $92,857.14.
Prize (d) is the most valuable because it has the highest presentvalue.
Question 20: Annuities
Siefried Basset is 65...

...On January 1, 2011, Boston Company completed the following transactions (use a 9 percent annual interest rate for all transactions
a. Borrowed $103,000 for nine years. Will pay $9,270 interest at the end of each year and repay the $103,000 at the end of the 9th year.
In transaction (a), determine the presentvalue of the debt.
1. We find PV of ANnuity of $1 for 9 Yrs at 9% = 5.9952
PV of $1 for 9Yrs @9% = 0.4604
So PV of debt = 9270*5.9952 + 103000*0.4604 = $1,02,997
b. Established a plant addition fund of $520,000 to be available at the end of year 8. A single sum that will grow to $520,000 will be deposited on January 1, 2011.
In transaction (b), what single sum amount must the company deposit on January 1, 2011?
PV of $1 for 8Yrs @9% = 0.5019
So Single amount deposited = 520000*0.5019 = $2,60,988
c. Agreed to pay a severance package to a discharged employee. The company will pay $84,000 at the end of the first year, $122,500 at the end of the second year, and $146,000 at the end of the third year.
In transaction (c), determine the presentvalue of this obligation
PV = 84000*PVIF(1,9%) + 122500*PVIF(2,9%)+146000*PVIF(3,9%)
= 84000*0.9174 + 122500*0.8417 + 146000*0.7722 =$2,92,911
d. Purchased a $130,000 machine on January 1, 2011, and paid cash, $35,000. A eight-year note payable is signed for the balance. The note will be paid in eight equal year-end payments starting on December 31, 2011....

...Ryan Nguyen
04/13/2013
Dr. Choi
Finance 3300
Exam 3 Short Essay.
Net Presentvalue is the difference between an investment’s market value and its cost. For an example, you invest 100 dollars (Cost) into a lemonade stand but you receive 50 dollars (Market Value) of cash inflow. Another would be you buy a house for 50,000(Cost) But you sell it for 75,000(Market Value). Your net presentvalue An Investment should be accepted if the net presentvalue is positive and it should be rejected if the net presentvalue is negative. Net presentvalue uses the discounted cash flow of valuation, which is the process of valuing an investment by discounting future cash flows. Comparison to another rule, which is called the Internal rate of return, uses the discount rate that makes the NPV of an Investment zero. IRR finds the single rate that summaries the rate of return of a project. We only depend on cash flow of a particular investment not the rates offered elsewhere. For an example, you let your brother burrow 100 dollars but he pays you back 125 dollars. You would ask what is the return on this investment, which is 25% or 1.25 dollars back for every 1 dollar invested. This investment would be only valid if the required return is less than 25% because anything more would fall...

...
Net presentValue, Mergers and acquisitions
Abstract
Main objective of undertaking this to report was learn about NPV presentvalue (NPV) method to make capital budgeting decision(Google NEW Project) and success factors involved in mergers and acquisitions(Google-Groupon Case).
Answers to the Assignments
Part I: Google should go ahead with the new project.
Part-II: Google’s acquisition of Groupon would have been win -win situation for both corporations
Now I will discuss both parts in detail below.
Part I: Capital Budgeting
Capital budgeting is the process of making long-term planning decision relating to planning for capital assets as to whether or not money should be invested in the long term projects (en.wikipedia.com). Decisions like obtaining new facilities or purchase or new machinery to expand their business. It involves a financial analysis of the various alternative proposals regarding a capital expenditure and to select the best out of the several alternatives.
There are several methods of evaluating investment projects like NPV, IRR, Payback period and Profitability Index (www.investopedia.com). I will be discussing NPV and IRR for this assignment.
Net PresentValue (NPV)
NPV is a method which uses discounted cash flow techniques. Net PresentValue is equal to the difference between the Present...

...WHY IS THE CONCEPT OF PRESENTVALUE SO IMPORTANT FOR CORPORATE FINANCE?
The importance of concept of presentvalue to the world of corporate finance is that presentvalue calculations are widely used in business and economics to provide a means to compare cash flows at different times. Present Value’s definition and simplistic formula used for normal purchases, the concept’s importance to corporate finance and why presentvalue is the very first topic taught in finance classes explain that presentvalue is an essential knowledgeable tool to ensure we make the best decisions with our money.
However, first, What Does PresentValue - PV Mean? Presentvalue is “the current worth of a future sum of money or stream of cash flows given a specified rate of return. Future cash flows are discounted at the discount rate, and the higher the discount rate, the lower the presentvalue of the future cash flows. Determining the appropriate discount rate is the key to properly valuing future cash flows, whether they are earnings or obligations.” Through the definition itself, an importance to corporate finance is explained as well as why professors begin a finance course with a basis explanation...

... how much money will be in your account after 5 years?
2. What is the presentvalue of a security that promises to pay you $5,000 in 20 years? Assume that you can earn 7 percent if you were to invest in other securities of equal risk.
3. If you deposit money today into an account that pays 6.5 percent interest, how long will it take for you to double your money?
4. Your parents are planning to retire in 18 years. They currently have $250,000 and they would like to have $1,000,000 when they retire. What annual rate of interest would they have to earn on their $250,000 in order to reach their goal, assuming they save no more money?
5. What is the futurevalue of a 5-year ordinary annuity that promises to pay you $300 each year? The rate of interest is 7 percent.
6. What is the futurevalue of a 5-year annuity due that promises to pay you $300 each year? Assume that all payments are reinvested at 7 percent a year.
7. While you were a student in college, you borrowed $12,000 in student loans at an interest rate of 9 percent, compounded annually. If you repay $1,500 per year, how long, to the nearest year, will it take you to repay the loan?
8. What is the presentvalue of a perpetuity of $100 per year if the appropriate discount rate is 7 percent? If interest rates in general were to double and the appropriate discount rate rose to 14...

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