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 © 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 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 ©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 Future value with multiple cash flows—Drawing and using a time line Suppose you deposit $100 today in an account paying 8%. In one year, you will deposit another $100. How much will you have in two years? At the end of first year = 100* ()+100=208 At the end of second year = 208*()= 5- 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 Note $100 deposit at the end of first year. Point out how students can draw a time line for problems to visualise how the actual cash flows occur in time. Note the present time is T=0. The cash flows must be written on the time when they occur on the time line. Encourage students to draw a time line for every example discussed in the slides. Future value: Multiple cash flows Example You think you will be able to deposit $4000 at the end of each of the next 3 years in a bank account paying 8% interest. You currently have $7000 in the account. How much will you have in 3 years? How much in 4 years? 5- Copyright © 2011 . | 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 © 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 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 ©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 Future value with multiple cash flows—Drawing and using a time line Suppose you deposit $100 today in an
