Present Value 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 present value of the future cash flows. Determining the appropriate discount rate is the key to properly valuing future cash flows‚ whether they be earnings or obligations. Present Value of annuity is a series of equal payments or receipts that occur at evenly spaced intervals
Premium Time value of money Time Net present value
ANNUITY DUE An annuity for which the periodic payments are made at the beginning of each payment interval. The term of an annuity due begins on the date of the first payment interval after the last payment is made. FUTURE VALUE OF ANNUITY DUE 1. Using the Annuity Table * Uses the same table as ordinary annuities but with some modifications. Example : Ferdie Gonzales deposited P6‚000 at the beginning of each month‚ for 2 years at his credit union. If the
Premium Time value of money Time Compound interest
Basic Formulas: Present value interest factor of an annuity‚ PVIFA(k‚n) = [ 1 – ( 1 + k )-n ] / k Present value interest factor of a perpetuity‚ PVIFA(k; ∞) = 1 / k Future value interest factor of an annuity‚ FVIFA(k‚n) = [ ( 1 + k )n –1 ] / k Annuities Due‚ payments at start of period‚ PVIFADue(k‚n) = PVIFA(k‚n) * ( 1 + k ) FVIFADue(k‚n) = FVIFA(k‚n) * ( 1 + k ) Where: k is the effective discount rate
Premium Time value of money Time Future value
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 present value 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
Premium Money
. To find the PVA‚ we use the equation: PVA = C({1 – [1/(1 + r)]t } / r ) PVA = $60‚000{[1 – (1/1.0825)9 ] / .0825} PVA = $370‚947.84 The present value of the revenue is greater than the cost‚ so your company can afford the equipment. 7. Here we need to find the FVA. The equation to find the FVA is: FVA = C{[(1 + r)t – 1] / r} FVA for 20 years = $3‚000[(1.08520 – 1) / .085] FVA for 20 years = $145‚131.04 FVA for 40 years = $3‚000[(1.08540 – 1) / .085] FVA for 40
Premium Time value of money Cash Debt
Annuities An annuity is a financial product sold by financial institutions that is designed to accept and grow funds from an individual and then payout a stream of payments to the individual at a later point in time. Annuities are primarily used as a means of securing a steady cash flow for an individual during their retirement years. A fixed sum of money paid to someone each year‚ typically for the rest of their life. Annuities are a popular choice for investors who want to receive a steady
Premium Investment Money Withdrawal
AS2053 Feb. 2012 Lecture Notes-AM Note-Chapter 2 Chapter 2: (Contingent) Life Annuities 2.1 Annuity Certain Review 2.2 Net Single Premium(NSP) 2.3 Pure Endowment 2.4 Whole Life annuities 2.5 Temporary Life Annuities 2.6 Deferred Life Annuities 2.7 Varying Life Annuities 1 AS2053 Feb. 2012 Lecture Notes-AM Note-Chapter 2 Chapter 2- Life Annuities Note: There are copies of the text tables at the end of the lecture note handout. You should print them off and bring them to class (for
Premium Life insurance
Net Present Value/Present Value Index The management team at Savage Corporation is evaluating two alternative capital investment opportunities. The first alternative‚ modernizing the company’s current machinery‚ costs $45‚000. Management estimates the modernization project will reduce annual net cash outflows by $12‚500 per year for the next five years. The second alternative‚ purchasing a new machine‚ costs $56‚500. The new machine is expected to have a five-year useful life and a $4‚000
Premium Net present value Variable cost Cash flow
Net present Value‚ Mergers and acquisitions Abstract Main objective of undertaking this to report was learn about NPV present value (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
Premium Net present value Internal rate of return Time value of money
Present value 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. Present value calculations are commonly utilized in business and economics to provide a way to compare cash flows at different times. Present value 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
Premium Future value Time value of money Net present value