After completing this unit, you should be able to compute the future value of an investment made today, be able to compute the present value of cash to be received at some future date, be able to compute the return on an investment. | Introduction to valuation: The time value of money Chapter 4 4- Key concepts and skills Be able to compute the following: The future value of an investment made today The present value of cash to be received at some future date The return on an investment Be able to predict how long it will take for an investment to reach a desired value Be able to solve time value of money problems using: formulas a financial calculator a spreadsheet Copyright 2011 McGraw-Hill Australia Pty Ltd PPTs t/a Essentials of Corporate Finance 2e by Ross et al. Slides prepared by David E. Allen and Abhay K. Singh 4- Chapter outline Future value and compounding Present value and discounting More on present and future values Copyright © 2011 McGraw-Hill Australia Pty Ltd PPTs t/a Essentials of Corporate Finance 2e by Ross et al. Slides prepared by David E. Allen and Abhay K. Singh 4- Basic definitions Present value (PV) The current value of future cash flows discounted at the appropriate discount rate. Value at t=0 on a time line Future value (FV) The amount an investment is worth after one or more periods. ‘Later’ money on a time line Copyright 2011 McGraw-Hill Australia Pty Ltd PPTs t/a Essentials of Corporate Finance 2e by Ross et al. Slides prepared by David E. Allen and Abhay K. Singh 4- Time value of money refers to the fact that a dollar in hand today is worth more than a dollar promised at some time in the future. At a practical level, one reason for this is that you could earn interest while you waited; so a dollar today would grow to more than a dollar later. The trade-off between money now and money later therefore depends on, among other things, the rate you can earn by investing. Basic definitions (cont.) Interest rate (r) Discount rate Cost of capital Opportunity cost of capital Required return Terminology depends on usage Copyright 2011 McGraw-Hill Australia Pty Ltd PPTs t/a Essentials of Corporate Finance 2e by Ross et al. Slides . | Introduction to valuation: The time value of money Chapter 4 4- Key concepts and skills Be able to compute the following: The future value of an investment made today The present value of cash to be received at some future date The return on an investment Be able to predict how long it will take for an investment to reach a desired value Be able to solve time value of money problems using: formulas a financial calculator a spreadsheet Copyright 2011 McGraw-Hill Australia Pty Ltd PPTs t/a Essentials of Corporate Finance 2e by Ross et al. Slides prepared by David E. Allen and Abhay K. Singh 4- Chapter outline Future value and compounding Present value and discounting More on present and future values Copyright © 2011 McGraw-Hill Australia Pty Ltd PPTs t/a Essentials of Corporate Finance 2e by Ross et al. Slides prepared by David E. Allen and Abhay K. Singh 4- Basic definitions Present value (PV) The current value of future cash flows discounted at the .
