TIME VALUE OF MONEY

Present Value of a Series or Cash Flows. So far we have considered only the present value of a single receipt at some future date. In many instances, .especially in capital budgeting decisions, we may be interested in the present value of a series of receipts...
TIME VALUE OF MONEY

EXAMPLE 2.5 Mr X wants to find the present value of Rs 2,000 to be received 5 years from now, assuming 10 per cent rate of interest. We have to look in the 10 per cent column of the fifth year in Table A·3. The relevant PVIF as per Table A-3 is 0.621. Therefore,...
TIME VALUE OF MONEY

Present Value Tables In order to simplify the present value calculations, tables are readily available for various ranges of i and n. Table A-3 in the Appendix gives the present value factors for various discount rates and years. Since the factors in Table A-3 give...
TIME VALUE OF MONEY

Mathematical Formulation Since finding present value is simply the reverse of compounding, he formula for compounding of the sum can be readily transformed into a present value formula. As shown in the preceding section, according to the compounding formula, A = P(1 +...
TIME VALUE OF MONEY

EXAMPLE 2.4 Mr X has been given an opportunity to receive Rs 1,060 one year from now. He knows that he can earn 6 per cent interest on his investments. The question is: what amount will he be prepared to invest for this opportunity? To answer this question: we must...
TIME VALUE OF MONEY

Present Value or Discounting Technique The concept of the present value is the exact opposite of that of compound value. While in the latter approach money invested now appreciates in value because compound interest is added, in the former approach (present value...