Scribd Logo
Upload

Welcome to Scribd!

  • Chapter 2 (IV)

    Uploaded by

    Sh
    6 views8 pages

    Original Title

    Chapter_2(IV)

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    6 views8 pages

    Chapter 2 (IV)

    Uploaded by

    Sh

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    of 8
    Main theorem on Present value! - The cath, {tow sheams | a EE XS (Up mpand Ve (Yor Yn sean) On equivalent for a condart jdeal bank with oterat rode hf’ Bodie a the presmt values of the two stroms, evaluated of the banb's interest vate,» are equal. Proof! Lt rh and 1, be the present valus of the streams X and y wap. Then we can draraorm X= (%M%a- 1 mq) ——> (Vas 000, ---0). rd Y= (Yor de tn) ——3 (yr r8)- > 0). 94: 15 clear thot trem. (Uy 0)-- 0) and Lg (Yyro-"2) ar equiudent uf and on sf = By BSine xX B equivalent to sheom (Uy 10" --) 0) ono ys equivalent to stream ( Uy 0) --70). Thig mplia gtnams X and y ax equivalent Jf ond ory vf Vy = By: CUVEE VVVVVVUEEUEED EDU ¥eddd dU Yds Inlomnal vale of Return:— (TAR) :~ gntimall rare oe "She internal rade of vetum is the interest vate thed wit discourt .an ‘investment’s fun cash amounts 0 that the. sum of the present valuer uid be equa to cash pad af beginnine, of the investment,” the prebimiramy formal definition of TAR i o flours ~~ Scanned with CamScanner Internal vate of Return Let (oH ym) bea cash flow sheom . Then the internal vate of veturn of thit vode of veturn & 3% ber year @) yeu on investing $ joo fede ard get hock $ 60 after 1 year amol get back anther $60 after 2-year, Then ford IRB: 2 Cash flow seam for akove rnvetmort fe (100) 60 60). Supbe TAR % vy. Then we must have PY =o for above ttrcam LADPAL PNP PP PP PP PP PLP PPP PPD 999 9 EY a Scanned with CamScanner oa 2 ev afea a Sh * (oop or aloo + 0 (4) 4 bo Gry at Now by PE trial ard envor method we get on = by. Plhror, zs The vélue 1's called the Internal vate ‘of return hecaine IF the sdvesk interest yate tmplica va the. tternal ctrueture a the cach flow sheam, 8 Consider the cash flow sheam Ca, ty1)1). The miernal yole of return js found by. emg the equation Yo + C+ tH Ee, oF =o Where % =-2, HAN, % al, %z=1 ond @ = L wd. \ [PSST Se ew afm above Selene get “240404 20. be trial and error method we Qt C=O8!l- therefore Y= -! a c DUI WINN YYY UU YUU YTS | a6! 0:23 u # Note thad the inteynal vate of return 4% defined uithous 2 nner vreforence toa prevailing twlerest yode. Dd is > — determined entirety by the cash floos of the stream, this is the reason why J vy calleol the imtornal vate of rckurn: Hts defrned paternally, uvHout referemce +o the eternal Scanned with CamScanner VOW WvVv A financial word. I4 1 the vale thot an ideal bank would! Fou to abby. to generate the given stream fom an intial balance to Zev. i Main theorem of Internal sate of Retuin + Suppore the ces iow strom (045%) == Mn) Ras Hy Zo aro! % 7-0 for A Baba yn, uuith af Seat ane Herm ben shric dy positive. Then there 13 a unique baritwe root to the equation : fir TPPTISIIESE SSS oa Mot MC+MO 4H. +90 = 0, n Furthermore, sf 57 MH, > Emeoning thot the total amowr- =o : returned exceeds the imitial investment), them the cal ; yal FS Ny interna vode of return vy = fo 13 posi'tve, + Proof: ~ — te I Supp — fle) = Hoy C+ + My C? Orel rope of His fuvetion i above, Now af C m0 : floes = % Lo 3 fe) fayro And we alread Frou {@) £0 ond fs) =0- Se 5 ST (sree ey strict thonosing. ame \ FG <0) ) Now, we Rove Ya Le spye C for <1 = de EPL Think :c) 9s 2+ portble that Céol = ti) 9st powible that x {02 moots of the equaton ft) =0 1s combler. then Eo ew z to gedeot the solution that hos Iw goveral a4 ty reatonable Jorgest read part and ure thob sal part do determene the value of ERK Scanned with CamScanner Evaluation Coriteria'— The’ etterce of raveitmont ri seleahion fom 0 remlar of alternative cash flow cheaine.. Uk) cicose Rove, two most impovtant method ar thor bated on frcront value and) infernal vate of aeturn. to evaluate the Utornalree cath fiow shams. Net present Value Csteads (Nw py’) a _Method mf amm cath pres sts lagen» cat. 33 Net present Value = Present value of the benefits — Present vate of the costs. = Present worth of benefits — Present worth of costs. For ary cash flow strom (20% )-++1 my) uth a er periad inlorat role %, We Fowe PV = +%e 4 ME 4 Ae a 2n rer Oey J Tae Rene present worth of benedrd 1s: Bey peg, olapeed yp Ia Ter * Tar) at Gary Areseret worth of casts to: & Oe NPV = a4 (aeye t+ Tyo] - PAPRAOAOOOBROD OO OOo Oo ooo ees Scanned with CamScanner Exarrpl ne Assume that a combory makes a ash mucctmant of $:600000: inva brogect thot is exbected +0 provide fulum Cash inflows of $ looove. ot the end of each, year for fo gears. We are compomdma yearly my wuith rmleret rate Ly. => We Rave cash flow ‘stred-m~

    You might also like