TIME VALUE OF MONEY. COMPOUNDING Determining the future value of present money.
Qs.time Value of Money
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Transcript of Qs.time Value of Money
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Question and Answer
Samples and Techniques
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Present value is multiplied by the
compound factor to find the future value .
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Actual percentage rate and annual % yield
are synonymous.
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In the case of annuity due cash flow occurs
at the beginning of each time period
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There are two methods by which time
value of money can be calculated.
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Under the method of discounting we
reckon the time value of money now.
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Annuity is the term used to describe a
series of periodic flow of equal Amounts,
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In case of regular annuity cash flow occurs
at the beginning of each time period
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Under the method of compounding we find
present value of all cash flows.
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The net present value is equal to the sum of presentvalues of all future inflows
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What is an annuity?What are the different
types?
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Discuss various techniques of capital
budgeting.
cn
Microsoft Office
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What is the future value Of Rs
1000/=deposited annually for 4 years
@10%
None of the above
5000
Rs 6705
Rs610
5
Rs 4641
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What is the future value Of Rs
1000/=deposited for 4 years @10%
None of the above
5000
Rs 6705
Rs610
5
Rs 1464
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What is the present value Of Rs
1000/=receivable at the end of every
year for 4 years @10%
None of the above
5000
Rs 6705
Rs 4000 approxly
Rs 3100 approxly
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What is the present value Of Rs
10000/=receivable at the end of third
year discounted @10%
None of the above
5000
Rs 6705
Rs 4000 approxly
Rs7521 approxly
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In IRR the cash inflows are assumed
to be reinvested in the project at
None of the above
Risk free rate
Internal rate of return
Marginal cost of capital
At cost of capital
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For a project the benefit cost ratio
is equal to one (PV=I) then the
None of the above
IRR > THE DISCOUNTED RATE
Internal rate of return will be > 1
IRR < DISCOUNT RATE
IRR = DISCOUNT RATE
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Which of the following is a non
discounting technique for appraising a
project
None of the above
THE DISCOUNTED cash flow method
Internal rate of return
The NPV method
Pay Back Period
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Match the following:
Rule of 72
NPV
Future value
annuity
risk
Standard deviation
compounding
Doubling period
DISCOUNTING
Uniform cash flow
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Computing future value involves
None of the above
Average of a & b
Annuity formula
Simple interest formula
Compound interest rate formula
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An annuity involves
None of the above
Average of a & b
Multiple cash flows
Different cash flows for different periods
Uniform cash flow during different periods
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Which of the following is /are true
If BCR > 1 & NBCR< 0 ACCEPT THE PROJECT
IF BCR< 1 & NBCR> 0 REJECT THE PROJECT
If BCR0 REJECT THE PROJECT
If BCR> 1 & NBCR> 0 ACCEPT THE PROJECT
Both b& d
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What will happen to NPV of a project if fixed cost is
increased from 2000 to 3000, if the firm is profitable
and is in 35% tax bracket, and employs 12% cost of
capital
NPV Decreases by Rs 1000
NPV INCREASES BY 650
NPV decreases by 650
NPV increases by Rs 1000
NPV DECREASES BY 58.4%
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An insurance company offers you,to pay Rs 25,000/=every
year for 6 years,if you pay Rs 100,000/= today.compute
the interest rate
PVIFA=100,000/25,000= 4
READ PVIFATABLECORRESPONDING TO 6YEARS .RATELIES BETWEEN
THE VALUE
12- 14 THE
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1)Pay back period
2)Accounting rate of return
3)NPV
4)IRR5)CBA
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year Project -1 Rs Project-2 Rs For discount
rates
0 (300,000) (300,000) 10%
1 60,000 130,000 12%2 100,000 100,000 14%
3 120,000 80,000 15%
4 150,000 60,000 16%
total 130,000 60,000
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Evaluate : 2 mutually exclusive projects
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Period/rate 10% 12% !4% 15%
1 0.909 .893 .877 .870
2 0.826 .797 .770 .756
3 0.751 .712 .675 .658
4 0.683 .636 .592 .572
5 0.621 .567 .519 .497
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Present value table
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Discount rate% NPV-1 NPV-2 RECOMMENDAT
ION
10 36,622 29,180 A
12 20,390 17,658 A14 5,318 6,288 B
15 (1826) 1654 B
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The results
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YEAR CASH FLOW 15% 16%
0 (100000)
1 30,000
2 30,000
3 40,000
4 45,000
100,802 98641
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IRR
SINCE NPV IS NEGATIVE AT 16% THE IRR LIES BETWEEN 15 & 16%
Approximately the IRR =15+ (802/802+1359)=15+0.37=15.37