UNIT

41:

FINANCIAL
PLANNING
GROUP 15

LECTURER: TRAN THI TRANG LOAN,

Ph.D.
MEMBERS OF
GROUP
NGUYỄN LÂM MAI DUY - 2029205088
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Content List
LIST CONTENT
PRESENTATION
A FINANCING NEW INVESTMENT

B DISCOUNTED CASH FLOW

C COMPARING INVESTMENT RETURNS

 A FINANCING NEW INVESTMENTS:
- Financing planning: involves calculating whether new projects
would be profitable.
- Rate of return: the amount of income we’d receive each year
from the investment, expressed as a percentage of the total amount
invested.
- The cost of capital - the amount we have to pay to borrow the
money.
 The workers work in the financial planning have to calculate
the probable rate of return.
 If we need to borrow money to finance a new investment, its
projected rate of return has to be higher than the cost capital.
B DISCOUNTED CASH
FLOWS:
- The discounted cash flow value of an investment: discounting or
reducing future cash flows to get their present values.
- Purchasing power: you’ll be able to buy more or less with the
same amount of money in the future.
- The time value of money: how much more it is worth to receive
money now rather than in the future.
- Why do you calculate the discounted cash flow value of an
investment ?
 Because the value of money decreases over time.
 C COMPARING INVESTMENT RETURNS:
- The net present value (NPV) of each project is worked out by adding
up all the excepted cash flows, discounted to their present value, minus
the initial investment.
- Discount rate or capitalization rate are two choices in order to select.
The internal rate of return(IRR) is calculated when we’re comparing
alternative investment.
- The internal rate of return(IRR) is the interest rate or discount rate
that give a net present value of zero in today’s money values.
 In other words, the present value of the cash that we’re going to
receive from an investment is the same as the present value of
borrowing the cash. We normally choose the investment with the
highest IRR.
 41.1 Match the words in the box with the definitions below.Look at
A, B and C opposite to help you.
discount rate discounted cash flow internal rate of return
purchasing power rate of return time value of money

1 a series of future earnings converted to their value today discounted cash flow
2 the annual percentage amount of income received from an investinent rate of return
3 the interest rate an investment carns when the present value of all costs equals the present value of
all returns internal rate of return
4 the difference between the value of money held now, and its value if it is received in the future,
because it could be invested during that period time value of money
5 the value of money, measured by the quantity (and quality) of products
and services it can buy purchasing power
6 the interest rate used to calculate the present value of future cash flows discount rate
41.2 Are the following statements true or false? Find
reasons for your answers in A and B opposite.
1 If a company uses its own money for a new project, there is no opportunity cost of capital.
=>False - the return we could get by investing the money in other ways is the opportunity
cost of capital
2 A project financed by borrowed money requires a rate of return higher than the cost of capital.
=>True - the rate of return must be at least as high as we could get by depositing the money
in a bank instead, or by making another risk-free investment

3 Because of inflation, money will usually be worth more in the future than at the present.
=>False - there's nearly always inflation, so cash will have lower purchasing power in the
future: you'll be able to buy less with the same amount of money
4 The longer you have to wait for investment returns, the less their present value is.
=>True - the value of money decreases over time
 41.3 March the two parts of the sentences. Look at B and
C opposite to help you.

1 Future cash flows are usually discounted a businesses look for the one with the
highest internal rate of return.

2 If a project seems to be particularly risky or b by the cost of the capital involved in the
uncertain, investment.

3 Money you possess now is worth more than c discounted to their current value.
money received in the future, because
d it can earn interest in that time, and
there might be inflation.
4 The net present value of a project is the sum of all
the returns it is expected to provide,
e you can increase the discount rate you
use in your calculations.
5 When choosing among potential investments,
1a 2e 3d 4c 5a
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