BUSI 2401U Lecture Notes - Lecture 3: Cash Flow, 0 (Year), Net Present Value
Document Summary
Example: you currently have ,000 in a bank account earning 8% interest. You think you will be able to deposit an additional ,000 at the end of each of the next three years. How much will you have in three years: find the value at year 3 of each cash flow and add them together, formula approach. Today (year 0): fv = 7000(1. 08)3 = 8,817. 98. Year 1: fv = 4,000(1. 08)2 = 4,665. 60. Year 2: fv = 4,000(1. 08) = 4,320. Total value in 3 years = 8817. 98 + 4665. 60 + 4320 + 4000 = 21,803. 58. Example: you are offered an investment that will pay you in one year, the next year, the year after, and at the end of the following year. How much is this investment worth today: find the pv of each cash flow and add them, formula approach. Year 1 cf: 200 / (1. 12)1 = 178. 57. Year 2 cf: 400 / (1. 12)2 = 318. 88.
