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Get My Homework Done|Homework Answers|Homework Help

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  1. EXAMPLES

  2. examples • Imagine you have purchased a stock at 2000 dollars and the expected returns for three years are as follows Year one =1,500 Year two =1,300 Year four =1,600 The net present value of the stock would be calculated as follows assuming a discounting rate of 5%

  3. Examples continued • NPV = PV of cash in flows-PV of cash outflows • PVIF=1/(1+K)^n = 1/(1+0.05)^1=0.9524 =1/(1+0.05)^2=0.90702 =1/(1+0.05)^3=0.8639 THE NPV YEAR PVIF AMOUNT P.V. 0 1 2,000 (2,000) 1 0.9524 1,500 1,428.6 2 0.90702 1,300 1,179.13 3 0.8639 1,600 1,382.17 NPV 1,990.00

  4. EXAMPLES CONTINUED CALCULATE THE VALUE OF THE COST OF THE ABOVE STOCK IN THE NEXT THREE YEARS. FVAt = PMT * {[(1+r)t –1]/r} = 2,000*{[(1+0.05)^3-1]/0.05 =2,000*3.1525 =6,305=FUTURE VALUE ASSUMING IT SHALL BE PAID TODAY. http://allhomeworktutors.com/

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