BUSA 100 Lecture Notes - Lecture 11: Sensitivity Analysis, Cash Flow, Risk-Free Interest Rate
Document Summary
All business activities reduce to 2 functions: valuation of assets, management of assets (assets = set of cash flow) Business decisions involve both valuation and management: objectives + valuation decision, objectives = maximize profit, shareholder value etc, valuation = dependent of objectives. Fundamentals of personal and corporate financial decision making. Dcf valuation components valuing something by using dcf: value, discounted, cash flow. A = p(1+rt) = : future value compound interest (you earn interest on interest) A = p(1 + r)^t = . 82. Pay down mortgage 2x a month better than each month because of compounding effect. If the interest rate is 6% per year, how much will you have in your bank upon receipt of final installment? (split it up!) ** fv = p(1 + r)^t *: present value and discounting. 133. 82 = p(1. 06)^5 p = . Simply invert the fv formula to get the pv formula present value of a future cash flow:
