公司理财(双语)timevalu.ppt
Chapter 2 FundamentalsFundamentalsofofCorporateCorporateFinanceFinanceNinth EditionPresent Value,The Objectives of The Firm,and Net Present Value2-2Time value of moneyA dollar today is worth more than a dollar tomorrow.The dollar today can be invested to start earning interest immediately2-3Present and Future ValuePresent ValueValue today of a future cash flow.Future ValueAmount to which an investment will grow after earning interest2-4Simple and Compound interestSimple interest Interest is not reinvested,is earned each period only on the original principal.Compound interestInterest means earning interest on interest.2-5Discount Factors and RatesDiscount RateInterest rate used to compute present values of future cash flows.Discount FactorPresent value of a$1 future payment.2-6Suppose you invest$1000 for one year at 5%per year.What is the future value in one year?Interest=1000(.05)=50Value in one year=principal+interest=1000+50=1050Future Value(FV)=1000(1+.05)=1050Suppose you leave the money in for another year.How much will you have two years from now?FV=1000(1.05)(1.05)=1000(1.05)2=1102.502-7Future ValuesFuture Value of$100=FV2-8FV=PV(1+r)tFV=future valuePV=present valuer=period interest rate t=number of periodsFuture value interest factor=(1+r)t2-9Quick Quiz What is the difference between simple interest and compound interest?Suppose you have$500 to invest and you believe that you can earn 8%per year over the next 15 years.How much would you have at the end of 15 years using compound interest?How much would you have using simple interest?5C-92-10Future ValuesExample-FVWhat is the future value of$100 if interest is compounded annually at a rate of 6%for five years?2-11Future ValuesExample-FVWhat is the future value of$400,000 if interest is compounded annually at a rate of 5%for one year?2-125-12Present ValuesHow much do I have to invest today to have some amount in the future?FV=PV(1+r)tRearrange to solve for PV=FV/(1+r)tWhen we talk about discounting,we mean finding the present value of some future amount.When we talk about the“value”of something,we are talking about the present value unless we specifically indicate that we want the future value.2-13Quick Quiz Part IIWhat is the relationship between present value and future value?Suppose you need$15,000 in 3 years.If you can earn 6%annually,how much do you need to invest today?If you could invest the money at 8%,would you have to invest more or less than at 6%?How much?5C-132-14Present Value2-15Present ValueDiscount Factor=DF=PV of FV$1Discount Factors can be used to compute the present value of any cash flow.2-16QuestionIf the present value of$150 paid at the end of one year is$130,what is the one-year discount factor?What is the discount rate?Calculate the one-year discount factor DF1 for discount rates of(a)10 percent,(b)20 percent,and(c)30 percent2-17Valuing an Office BuildingStep 1:Forecast cash flowsCost of building =C0 =370,000Sale price in Year 1=C1 =420,000Step 2:Estimate opportunity cost of capitalIf equally risky investments in the capital marketoffer a return of 5%,thenCost of capital =r =5%2-18Valuing an Office BuildingStep 3:Discount future cash flowsStep 4:Go ahead if PV of payoff exceeds investment2-19Net Present Value2-20Risk and Present ValueHigher risk projects require a higher rate of returnHigher required rates of return cause lower PVs2-21Risk and Present Value2-22Risk and Net Present Value
