In: Finance
Given a 4% required return, what is a $100 cash flow today, a $1,000 cash flow at the end of 1 year, and a $100,000 cash flow at the end of five years, worth to you TODAY? Referring to the question above, what would those same cash flows be worth to you at the end of five years?
Cash flow | ||||||
Discount rate | 0.04 | |||||
Year | 0 | 1 | 2 | 3 | 4 | 5 |
Cash flow stream | 100 | 1000 | 0 | 0 | 0 | 100000 |
Discounting factor | 1 | 1.04 | 1.0816 | 1.124864 | 1.1698586 | 1.216653 |
Discounted cash flows project | 100 | 961.5385 | 0 | 0 | 0 | 82192.71 |
NPV = Sum of discounted cash flows | ||||||
NPV Cash flow = | 83254.25 | |||||
Where | ||||||
Discounting factor = | (1 + discount rate)^(Corresponding period in years) | |||||
Discounted Cashflow= | Cash flow stream/discounting factor | |||||
FV
Future Value | ||||||
Last period= | 5 | |||||
Compounding rate | 4.000% | |||||
Year | 0 | 1 | 2 | 3 | 4 | 5 |
Cash flow stream | 100 | 1000 | 0 | 0 | 0 | 100000 |
Compounding factor | 1.217 | 1.170 | 1.125 | 1.082 | 1.040 | 1.000 |
Compounded cash flows | 121.665 | 1169.859 | 0.000 | 0.000 | 0.000 | 100000.000 |
FV = Sum of compounded cash flows | ||||||
FV= | 101291.52 | |||||
Where | ||||||
Compunding factor = | (1 + rate)^(Last period-Corresponding period in years) | |||||
Compounded Cashflow= | Cash flow stream*compounding factor | |||||