In this chapter, students will be able to understand: Be able to compute the future value of multiple cash flows, be able to compute the present value of multiple cash flows, be able to compute loan payments, be able to find the interest rate on a loan, understand how loans are amortised or paid off, understand how interest rates are quoted. | Discounted Cash Flow Valuation Chapter 5 Key Concepts and Skills Be able to compute the future value of multiple cash flows Be able to compute the present value of multiple cash flows Be able to compute loan payments Be able to find the interest rate on a loan Understand how loans are amortised or paid off Understand how interest rates are quoted 5- Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Essentials of Corporate Finance by Ross, Trayler, Bird, Westerfield & Jordan Slides prepared by Rowan Trayler Chapter Outline Future and Present Values of Multiple Cash Flows Valuing Level Cash Flows: Annuities and Perpetuities Comparing Rates: The Effect of Compounding Periods Loan Types and Loan Amortisation 5- Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Essentials of Corporate Finance by Ross, Trayler, Bird, Westerfield & Jordan Slides prepared by Rowan Trayler Multiple Cash Flows – FV Example Find the value at year 3 of each cash flow and add them together. Today (year 0): FV = 7000()3 = $8, Year 1: FV = 4,000()2 = $4, Year 2: FV = 4,000() = $4,320 Year 3: value = $4,000 Total value in 3 years = + + 4320 + 4000 = $21, Value at year 4 = 21,() = $23, 5- Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Essentials of Corporate Finance by Ross, Trayler, Bird, Westerfield & Jordan Slides prepared by Rowan Trayler Point out that you can find the value of a set of cash flows at any point in time, all you have to do is get the value of each cash flow at that point in time and then add them together. The students can read the example in the book. It is also provided here. You think you will be able to deposit $4,000 at the end of each of the next three years in a bank account paying 8 percent interest. You currently have $7,000 in the account. How much will you have in three years? In four years? Point out that there are several ways that this can be worked. The book works | Discounted Cash Flow Valuation Chapter 5 Key Concepts and Skills Be able to compute the future value of multiple cash flows Be able to compute the present value of multiple cash flows Be able to compute loan payments Be able to find the interest rate on a loan Understand how loans are amortised or paid off Understand how interest rates are quoted 5- Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Essentials of Corporate Finance by Ross, Trayler, Bird, Westerfield & Jordan Slides prepared by Rowan Trayler Chapter Outline Future and Present Values of Multiple Cash Flows Valuing Level Cash Flows: Annuities and Perpetuities Comparing Rates: The Effect of Compounding Periods Loan Types and Loan Amortisation 5- Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Essentials of Corporate Finance by Ross, Trayler, Bird, Westerfield & Jordan Slides prepared by Rowan Trayler Multiple Cash Flows – FV Example Find the value at year 3 of each cash flow and add them .
