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## VALUATION OF FUTURE CASH FLOWS

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**VALUATION OF FUTURE CASH FLOWS**WOULD YOU RATHER HAVE $10,000 TODAY OR $100,000 IN 20 YEARS???**Calculating Future and Present Values of Cash Flows**• Formulas • Tables • Financial Calculators • Microsoft Excel**What Table Do I Use?**• FV of $1 • How much will $1 grow to in the future? • How much will I have in 30 years if I invest $1,000 now at 6% ? • How much will something cost in the future? • How much will a double cheeseburger in 40 years if the $1.00 cost increases by four percent per year?**What Table Do I Use?**• FV of Annuity • How much will $1 every year grow to in the future? • How much will I have in 30 years if I invest $2,000 every year at 9% ?**What Table Do I Use?**• PV of $1 • What is $1 in the future worth today? • How much is $1,000 received in 30 years worth today? • Must be less than $1,000 !!!**PRESENT VALUE**HOW MUCH IS $100,000 RECEIVED IN 20 YEARS WORTH TODAY IF YOU CAN INVEST AT 12% INTEREST COMPOUNDED ANNUALLY?? PV = $100,000 / (1.12)20 = $10,567**What Table Do I Use?**• PV of Annuity • How much will $1 received every year in the future worth today? • How much is it worth today to receive $80 per year for 30 years if I want a 9% rate of return?