Fundamentals of Corporate Finance Chapter 4 Introduction to Valuation: The Time Value of Money.
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Transcript of Fundamentals of Corporate Finance Chapter 4 Introduction to Valuation: The Time Value of Money.
![Page 1: Fundamentals of Corporate Finance Chapter 4 Introduction to Valuation: The Time Value of Money.](https://reader036.fdocuments.net/reader036/viewer/2022081506/56649dd25503460f94ac967a/html5/thumbnails/1.jpg)
Fundamentals of Corporate Finance
Chapter 4
Introduction to Valuation: The Time Value of Money
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Overview of Lecture
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Corporate Finance in the News
Insert a current news story here to frame the material you will cover in the lecture.
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Intuition
Assume that today is January 1, 2011. You have £10,000
Assume you will receive £10,000 when you graduate in 2015.What is worth more? £10,000 in
2011 or £10,000 in 2015?
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Future Value and Compounding
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Investing for a Single Period
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Investing for a Single Period
In general:
1 0 (1 )V V r Where Vt is the value at time t;r is the interest rate
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Some Terminology
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Some Terminology
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Example 4.1Interest on Interest
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Investing for More than One Period
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Investing for More than One Period
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Investing for More than One Period
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Investing for More than One Period
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Table 4.1Future Value of £100 at 10%
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Figure 4.1Future Value, Simple Interest and Compound Interest
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Figure 4.2Future Value of £1 for Different Periods and Rates
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Table 4.2Future Value Interest Factors
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Example 4.2Compound Interest
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Example 4.2Compound Interest
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Example 4.3How Much for that Island?
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Example 4.3How Much for that Island?
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Example 4.4Dividend Growth
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Example 4.4Dividend Growth
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Present Value and Discounting
Assume that today is January 1, 2011. You have £10,000
Assume you will receive £10,000 when you graduate in 2015.What is worth more? £10,000 in
2011 or £10,000 in 2015?
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Present Value: The Single Period Case
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Present Value: The Single Period Case
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Some More Terminology
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Example 4.5Single Period PV
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Present Values for Multiple Periods
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Present Values for Multiple Periods
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Present Values for Multiple Periods
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Present Values for Multiple Periods
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Example 4.6Saving Up
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Example 4.6Saving Up
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Present Value: A Generalisation
0 (1 )t
t
VPV V
r
Where Vt is the value at time t;r is the interest rate
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Table 4.3Present Value Interest Factors
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Example 4.7Deceptive Advertising?
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Example 4.7Deceptive Advertising?
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Figure 4.3Present Value of £1 for Different Periods and Rates
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Tying it all Together
PV ) FV
PV = FV / )
FV ) ]
FV (1 )
tt
tt
tt
tt
r
r
r
r
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Example 4.8Evaluating Investments
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Example 4.8Evaluating Investments
3£335 (1 ) = £335 1.1
= £335 1.331
= £445.89
tr
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Example 4.9Finding r for a Single Period Investment
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Example 4.9Finding r for a Single Period Investment
1€1,250 = €1,350 / (1 )
1 = €1,350 /1,250 1.08
= 8%
r
r
r
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Example 4.10Comic Collectibles as an Investment
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Example 4.11Saving for University
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Example 4.12Only 18,262.5 Days till Retirement
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Example 4.14Waiting for Godot
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Spreadsheet Strategies
Now is a good time to go over the past examples with a spreadsheet. You should show the students how to set up a capital budgeting spreadsheet as a foundation for later, more complex examples.
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Activities for this Lecture
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Thank You