W
Shared by:
Categories
Tags
-
Stats
views:
339
posted:
1/23/2008
language:
English
pages:
0
Document Sample

```							Instructions

Page 1

Instructions

iscount rates

Page 2

Definitions

DEFINITIONS AND SELECTED EXAMPLES Net Present Value = The increase or decrease in wealth created by the cash flows under analysis; the present value of the indicated cash flows discounted at the specified discount rate. Cash flows are assumed to occur at equal time intervals and at the end of the period. Internal Rate of Return = The discount rate that makes the Net Present Value of the given cash flows zero. If the computer does not find an IRR after 20 trials, or if the time 0 cash flow is positive, the IRR in Table A will show an error message. When other figures of merit show strange results or error messages, this usually indicates that the figures are not relevant for the cash flow analyzed. Equivalent Periodic Annuity = The annuity with a present value equal to the Net Present Value of the cash flows at the given discount rate. The life of the annuity equals that of the cash flows. Net Terminal Value = The terminal period cash flow with a present value equal to the Net Present Value of the cash flows at the given discount rate. Payback Period = The number of periods required for the undiscounted cash inflows to equal the original investment. Selected Examples 1. Mary invests \$100 today at 11.3% annual interest. What will this investment be worth in 70 years? Ans: Input cash flows as a 70 period, zero-value annuity, with a time 0 cash flow of \$100. NTV = \$179,746.94 2. Bill wants \$130,000 in 19 years to pay for his daughter's education. How much must he invest today at 7.26% annual interest? Ans: Input cash flows as a zero-value annuity from Year 1 to 18; with a time 0 cash flow and a Year 19 cash flow of \$130,000.. NPV = \$34,326.17 3. Alonzo needs a \$90,000 morgage loan. What will his monthly payments be on a 30-year, fixed rate loan at 9 7/8% annual interest? Ans: Input as a 360 period, zero-value annuity with a time 0 cash flow of \$90,000 and an interest rate equal to .09875/12 per period. Equivalent Periodic Annuity = \$781.51 4. Chun-yu can afford to pay \$900 per month in mortgage payments. How much can he borrow on a 25-year, fixed rate loan at an annual interest rate of 8 3/4%? Ans: Input as a 300 period annuity of \$900, a time 0 cash flow of 0 and an interest rate of .0875/12. NPV = \$109,469.92

Page 3

Definitions

the end of the

of the given

hat the figures

Net Present Value of the cash flows.

l to the Net Present

nflows to equal

on a 30-year,

Page 4

Cash Flows PV Profile

This computer program is protected by copyright law.

Page 5

DCF

Page 6

DCFInput

DCF Inputs Enter the number of PERIODs over which the cash flows extend 3 (Ignore time 0 flows) Enter the DISCOUNT RATE (cost of capital) in percent, i.e. enter 15% as 15 Enter a guess for the IRR (Use the DISCOUNT RATE if you are in doubt) Select One Do the cash flows contain... An Annuity A Gradient Neither

OK Cancel %

12

12

%

Page 7

AnnuityInput

Annuity/Gradient Features Enter the FIRST PERIOD of the annuity or gradient Enter the LAST PERIOD of the annuity or gradient Enter the ANNUAL AMOUNT of the annuity, or the INTIAL AMOUNT of the gradient Enter the PERIODIC CHANGE in the gradient. Leave blank if an annuity 1 OK Cancel 10

\$ 100

\$

Page 8

Chart Escape

Page 9

BarChart Escape

Page 10

OutputViewer

DCF Output Select The Output You Wish to View Table A: Results of DCF Analysis Cash Flow Diagram Present Value Profile OK Cancel

Page 11

Cash Flow Diagram
\$60.0

\$40.0

\$20.0

\$0 \$(20.0) 1 2 3

Dollars

\$(40.0)

\$(60.0)

\$(80.0)

\$(100.0)

\$(120.0)

Period

8/13/2008

Analysis for Financial Management, 6th Ed. by Robert C. Higgins

CashFlow

CASH FLOWS Period 0 1 2 3 Cash Flow \$ (100.0) \$ 20.0 \$ 40.0 \$ 50.0

Page 13

CFAnalysis

Table A. Results of Discounted Cash Flow Analysis

Initial Cash Flow Terminal Cash Flow Number of Periods Discount Rate FIGURES OF MERIT: Net Present Value (NPV) Internal Rate of Return (IRR) Profitability Index (PI) Equivalent Periodic Annuity Net Terminal Value (NTV) Payback Period in Years

(\$100.00) \$50.00 3 12.0000%

(\$14.67) 4.31% 0.85 (\$6.11) (\$20.60) 2.80

Page 14

Present Value Profile
\$20.0

\$10.0

\$0.0 0.00% 7.50% 15.00% 22.50% 30.00% 37.50% 45.00% 52.50% 60.00% 67.50% 75.00%

(\$10.0)
Net Present Value

(\$20.0)

(\$30.0)

(\$40.0)

(\$50.0)

(\$60.0)

(\$70.0) Discount Rate (%)

8/13/2008

Analysis for Financial Management, 6th Ed. by Robert C. Higgins

PVProfile

Present Value Profile Enter the discount rate at which to start (if in doubt try 0) Enter the discount rate at which to end (if in doubt try 50) 0.00%

75.00%

0.00% 7.50% 15.00% 22.50% 30.00% 37.50% 45.00% 52.50% 60.00% 67.50% 75.00%

\$10.0 (\$6.5) (\$19.5) (\$29.8) (\$38.2) (\$45.1) (\$50.8) (\$55.6) (\$59.7) (\$63.2) (\$66.2)

Page 16

Sheet4

Yr 0 1 2 3 4 5 6 7 8 9 10 11 12 13

-130 10 10 10 10 10 10 10 10 10 10 10 10 10

10 20 30 40 50 60 70 80 90 100 110 120 130

13

Page 17

```
Related docs