CHAPTER 6Discounted Cash Flow Analysis

11/19/97

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CHAPTER 6Discounted Cash Flow Analysis

Time line for a $100 lump sum due at the end of Year 2.

Time line for an ordinary annuity of $100 for 3 years.

Time line for uneven CFs -$50 at t = 0 and $100, $75, and $50 at the end of Years 1 through 3.

What’s the FV of an initial$100 after 3 years if i = 10%?

What’s the PV of $100 due in 3 years if i = 10%?

If sales grow at 20% per year, how long before sales double?

What’s the difference between an ordinary annuity and an annuity due?

What’s the FV of a 3-year ordinary annuity of $100 at 10%?

What’s the PV of this ordinary annuity?

Find the FV and PV if theannuity were an annuity due.

What is the PV of this uneven cashflow stream?

What interest rate would cause $100 to grow to $125.97 in 3 years?

Will the FV of a lump sum be larger or smaller if we compound more often, holding the stated i% constant? Why?

EAR = EFF% of 10%

Can the effective rate ever beequal to the nominal rate?

When is each rate used?

FV of $100 after 3 years under 10% semiannual compounding? Quarterly?

What’s the value at the end of Year 3 of the following CF stream if the quoted interest rate is 10%, compounded semi-annually?

1st Method: Compound Each CF

Could you find FV with afinancial calculator?

What’s the PV of this stream?

Step 1: Find the required payments.

Step 2: Find interest charge for Year 1.

Step 4: Find ending balance after Year 1.