Discounted Cash Flow Methods


10TH Edition

Robert C. Higgins

Additional Problems

Phase 7 – Discounted Cashflow Techniques site 247

A brief tutorial in Excel financial functions (problems to follow)

You may find the following Excel, built-in financial features helpful the moment analyzing the down sides below. (To access these functions, select Insert, Functions, and choose Financial. )

=PV(rate, nper, pmt, fv, type) comes back the present benefit of a series of cash moves.

=FV(rate, nper, pmt, pv, type) results the future worth of a series of cash runs.

=PMT(rate, nper, pv, fv, type) computes the regular payment funding based on frequent payments and a constant interest.

=NPER(rate, pmt, pv, fv, type) results the number of periods for a great investment based on periodic, constant repayments and a constant interest rate.

=NPV(rate, range) returns the web present worth of an expense based on a deep discount rate and a series of foreseeable future payments (negative values) and income (positive values). (Warning: By tradition, NPV computes the net present value one particular period prior to first income. )

=IRR(range, guess) earnings the internal price of go back for a group of cash runs.

In these features,

rate = the lower price, or interest rate.

nper sama dengan number of periods.

pmt sama dengan annual standard payment.

fv = upcoming value, or perhaps future cash flow.

type is a reasonable value letting you specify if cash moves occur at the conclusion or the start of the period. A value of 1 indicates beginning of period, zero or omitted indicates end of period.

pv = present benefit.

range sama dengan the skin cells on your chart containing the amount flows you want to analyze. For instance , if the money flows happen to be in the initial 10 rows of column A, the access for range would be a1: a10.

guess = your guess for the internal price of return. This helps the computer get started and may be still left blank.

An illustration Suppose you wish to know the present value of $100 annually for nineteen years and $500 at the end of the 19th year when the interest rate is usually 13 percent.

Select a chart cell and enter =PV(0. 13, 19, 100, 500). Excel will certainly return ($742. 83). This is actually the amount you should be offering today to receive the suggested stream of cash flows when the interest rate is usually 13 percent.


1) An investment costing $50, 000 promises an after duty cash flow of $18, 000 per year intended for 6 years.

a. Find the investment's accounting rate of return as well as its payback period.

b. Discover the investment's net present value for a 15 percent discount rate.

c. Find the investment's profitability index in a 15 percent price cut rate.

d. Find the investment's internal rate of return.

electronic. Assuming the required rate of return around the investment can be 15 percent, which with the above statistics of advantage indicate the investment is of interest? Which reveal it is less attractive?

2) A $1, 500 par value, 10 percent coupon bond matures in 20 years. If the value of the bond is $1, 196. 80, what is the yield to maturity on the bond? Believe interest is paid every year.

3) Ten years ago you invested $1, 000 for 10 shares of Trublock common inventory. You offered the stocks and shares recently pertaining to $2, 1000. While you possessed the share it paid $10. 08 per talk about annual returns. What was the rate of return in Trublock stock?

4) Having heard of your understanding of present value tactics, you have been asked to testify because an expert observe in the pursuing lawsuit.

A number of homeowners within a nearby community have arranged to protest against claimed gouging for a local lender. One resident presents his payment book as proof.

The resident contains a 30-year, fixed rate mortgage at six percent curiosity for one-hundred dollar, 000. This individual got the money 10 years back and continues to be making the same annual payments of $14, 529. 62 ever since. This individual observes that he has paid the lending company...



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