VALUATION OF FUTURE CASH FLOWS

# VALUATION OF FUTURE CASH FLOWS

## VALUATION OF FUTURE CASH FLOWS

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##### Presentation Transcript

1. VALUATION OF FUTURE CASH FLOWS WOULD YOU RATHER HAVE \$10,000 TODAY OR \$100,000 IN 20 YEARS???

2. Calculating Future and Present Values of Cash Flows • Formulas • Tables • Financial Calculators • Microsoft Excel

3. FUTURE VALUE

4. 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?

5. 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% ?

6. 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 !!!

7. 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

8. PRESENT VALUE

9. 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?