1.

Compute The Net Present Value

Discount rate 10% npv

Year Cash flow

1 100 90.909090909
2 100 82.644628099
3 100 75.13148009
4 100 68.301345537
5 100 62.092132306
379.07867694
2. Compute The Net Present Value
Discount rate 10%

Year Cash flow pv

1 $100.00 90.909090909091
2 $200.00 165.28925619835
3 $300.00 225.39444027047
4 $400.00 273.20538214603
5 $500.00 310.46066152958
npv 1065.2588310535
3. COMPUTE THE NET PRESENT VALUE
Discount Rate 10%

Year Cash flow

0 ($250.00) -250
1 $100.00 90.909090909
2 $100.00 82.644628099
3 $100.00 75.13148009
4 $100.00 68.301345537
5 $100.00 62.092132306
NPV $129.08
4. COMPUTE THE VALUE OF A FINITE ANNUITY
Periodic Payment, C $1,000.00 PV =
Number of future periods paid, 5
Discount rate, r 12% PV OF ANNUITY
 using formula
OR pv function
Period Annuity Payments
1 $1,000.00 npv function
2 $1,000.00
3 $1,000.00
4 $1,000.00
5 $1,000.00

5. COMPUTE THE VALUE OF AN INFINITE ANNUITY

Periodic Payment, C $1,000.00
Discount Rate, r 12% $8,333.33

6. COMPUTE THE VALUE OF A FINITE GROWING ANNUITY

First Payment, C $1,000.00
Growth rate of Payments, g 6%
Number of future periods paid, n 5
Discount rate, r 12%

OR

Period Annuity Payment

1 $1,000.00 $4,010.92
2 $1,060.00
3 $1,123.60
4 $1,191.02
5 $1,262.48

7. COMPUTE THE VALUE OF AN INFINITE GROWING ANNUITY

Periodic Payment C $1,000.00
Growth rate of payments, g 6%
Discount rate, r 12%

8. INTERNAL RATE OF RETURN

Year Cash flow
0 ($800.00) IRR
1 $200.00
2 $250.00
 3 $300.00
4 $350.00
5 $400.00

9. INTERNAL RATE OF RETURN (Trial and Error)

Discount rate 22.16% NPV

Year Cash flow

0 ($800.00)
1 $200.00
2 $250.00
3 $300.00
4 $350.00
5 $400.00
IRR
10. INTERNAL RATE OF RETURN (show loan table)
Year Cash flow
0 ($800.00)
1 $200.00
2 $250.00
3 $300.00
4 $350.00
5 $400.00
IRR 22.16%

11. USING A LOAN TABLE TO FIND THE IRR

IRR 24.44%

Cash flow at
Year Investment at the beginning of the end of the
the year
year
1$ 1,000.00 $300.00
2 $ 944.36 $200.00
3 $ 975.13 $150.00
4$ 1,063.41 $600.00
 5 $ 723.26 $900.00
6 $ 0.00

12. We can also find it by EXCEL to check our work

Direct calculation of IRR

Year Cash flow
0 -1000
1 300
2 200
3 150
4 600
5 900
24.44%
13. USING EXCEL'S RATE FUNCTION TO COMPUTE THE IRR
Initial Investment $1,000.00
Periodic Cash flows $100.00
Number of Payments 30

14. Flat Payment Schedule

Loan Principal $10,000.00
Interest Rate 7.00%
Loan Term 6 annual payment

year
15. SIMPLE FUTURE VALUE 1
PV 1000 2
INTEREST RATE 10% 3
YEAR 10 4
How much will you have at the end of 10 years? 5
$2,593.74 6
7
16. FUTURE VALUE WITH ANNUAL DEPOSITS
Interest 10%
Annual Deposit 1000
Number of Deposity 10
fv $17,531.17
another way y balance
1 0
2 1100
 3 2310
4 3641
5 5105.1
6 6715.61
7 8487.171
8 10435.8881
9 12579.47691
10 14937.424601

As he wants to
withdraw $30000
per year for next 8
years then total
amount $240000,
so he has to
deposit
240000/5= 48000
in each of the first
A RETIREMENT PROBLEM five years.
Interst 8%
Annual deposit 29386.5510006929
Annual retirement WITHDRAWAL 30000

17. MULTIPLE INTERNAL RATES OF RETURN 0%

3%
Discount rate 6% 6%
npv ($3.99) 9%
12%
Year Cash flow 15%
0 -145 18%
1 100 21%
2 100 24%
3 100 27%
4 100 30%
5 -275 33%
36%
39%
8.78%
first IRR 8.78% 26.6%
SECOND IRR 26.65%
npv $ (3.99)

8.78%
26.65%
 $379.08

$1,065.26

PV

$129.08

ANNUITY
3604.77620235
$3,604.78 PV FUNCTION A payment ta - figur a dite hai

$3,604.78 $3,604.78

npv formula

22.2%
$0.00

Repaym
Income ent of
principa
$244.36 l
$55.64 $ 244.36
$230.76 ($30.76) $ 230.76
$238.28 ($88.28) $ 238.28
$259.86 ### $ 259.86
 $176.74 ### $ 176.74

$ 244.36
$ 230.76
$ 238.28
$ 259.86
$ 176.74
$ 0.00

$2,097.96 $2,097.96

principal payment interest return of principal

$10,000.00 $2,097.96 $700.00 $1,397.96
$8,602.04 $2,097.96 $602.14 $1,495.82
$7,106.23 $2,097.96 $497.44 $1,600.52
$5,505.70 $2,097.96 $385.40 $1,712.56
$3,793.15 $2,097.96 $265.52 $1,832.44
$1,960.71 $2,097.96 $137.25 $1,960.71
$0.00

diposit interest total bal end of the year

1000 100 1100
1000 210 2310
 1000 331 3641
1000 464.1 5105.1
1000 610.51 6715.61
1000 771.561 8487.171
1000 948.7171 10435.8881
1000 1143.5888 12579.47691
1000 1357.9477 14937.424601
1000 1593.7425 17531.1670611
0

($20.00)
($10.51)
($3.99)
$0.24
$2.69
$3.77
$3.80
$3.02
$1.62
($0.24)
($2.44)
($4.90)
($7.53)
($10.27)
 ABC CORP. VALUATION
Free cash flow (FCF) year ending 31 Dec. 2012 10346
Growth rate of FCF, years 1-5 6.00%
Long-term FCF growth rate -5.00%
Weighted average cost of capital (WACC) 8.25%

Year 2012 2013

FCF 10967
Terminal value
Total 10967
Enterprise value 120041
Add back initial cash and marketable securities 14,972
Subtract out 2012 financial liabilities 17,515
Equity value 117498
Number of outstanding share 3,040,838,643
Share value of Our Model 38.6399761777628
Actual stock price (30 Dec 2011) 37.70
 2014 2015 2016 2017
11625 12322 13062 13845
99268
11625 12322 13062 113113

37.7 0% 3% 6% 9% 10% 15%

8%
10%
12%
13%
15%
18%
19%
20%