Valuation and Discounted Cash Flows - Case Study Example

Only on StudentShare

Extract of sample
Valuation and Discounted Cash Flows

“FVn = PV (1+k) n FVn = Future value at the end of the year n PV = Present value, or original principal amount k = Annual rate of interest paid n = Number of periods” (Future Value Formula 1). A note to Pru-Johntower Life Insurance Company, promising an annual rate of interest of 10%; EAR = [1+10%] ^15-1 = [1.1] ^14 = 3.797 So, the effective annual rate = 3.797. FV = 10,000,000 [1+3.797] 15 = 719550000. A note to Tom Paine Mutual Life Insurance Company, promising a rate of interest of 9.72% per year, compounded monthly. EAR = [1+9.72%] ^15*12-1 = [1.0972] ^180-1 = [1.0972] ^179 = 16261. So, the effective annual rate =16261. FV = 10,000,000 [1+16261] 15*12 = 29271600000000. Above the problem shows comparing the effective annual rates and future required payment of the two notes. In the case of Pru-Johntower Life Insurance Company, EAR is 3.797 and FV is 719550000. And the case of Tom Paine Mutual Life Insurance Company, EAR is 16261 and the FV is 29271600000000. 2. Following are the formula of calculating the mortgage loan. “a = [P (1 + r) Yr] / [(1 + r) Y - 1]” (Mortgage par. 8). Loan amount -$30,000 Annual interest rate- 3% Term of loan: (months) - 30 So the estimated monthly payments are $1,039.22 and they will pay $1,177 in interest over the life of the loan. The first alternative suggests that 30% discount. ...Show more


Subject October 19, 2011 Valuation and Discounted Cash Flows 1. Effective annual rate (EAR) is the rate of interest in use into account compounding above the year. Following are the formula of EAR, “EAR = [1 + (i/n)] ^n - 1; where i = stated annual interest rate n = number of compounding periods” (Effective Annual Rate (EAR) par…
Author : lfeeney
Save Your Time for More Important Things
Let us write or edit the case study on your topic
"Valuation and Discounted Cash Flows"
with a personal 20% discount.
Grab the best paper

Related Essays

Valuation of Sainsbury
To enhance the value of the company the author is thinking of measures to improve the company valuation. The methods of valuation of a company include: dividend discount model, free cash flow equity approach, free cash for flow firm approach and relative valuation. Sainsbury has been valued using the free cash flow for equity approach.
14 pages (3500 words) Research Paper
Valuation models literature review
The most important aspect of investment hovers around finding a suitable economy, the most appropriate industry type, and a specific company to invest in. After completing this, in order to make the right decision, valuation models must be used to come up with a correct recommendation of buying, selling, or holding the shares of the chosen companies.
11 pages (2750 words) Essay
Forest Management and unlawfull logging in Cameroon (centre Africa )
Towards the end of the past millennium the president of the country Paul Biya organized a summit for the head of the states to discuss the issue of proper management of the forest and its resources. It resulted in the Yaoundé Declaration where five central African states agreed to focus more on the better management of their national and local forests.
28 pages (7000 words) Thesis
Cash Flows Analysis and Financial Statements
All these users are interested in different areas of the information and utilize the information differently. The customers are interested in the company’s financial position since they want to be assured of continuous supply of goods and services. The employees of ProTek Company would be interested in the organization’s cash flow as well as the sound performance of the company.
4 pages (1000 words) Assignment
The Importance of Company Valuation to Investor, the Shortcoming of DCF Mode
In other words, such investors feel that risk is intrinsic to any investment. This belief is somehow misconstrued as the risk to an investment is always relative to the price paid. Hence, instead of focusing on the uncertainty that an investment may face such as volatility, it is recommended that investors measure the risks associated with their investments by valuation, which has more importance to investors than risks (Pratt, 1998).
5 pages (1250 words) Literature review
Statement of Cash Flows- Assignment
For each statement, indicate the term described, or answer "None" if the statement does not correctly describe any of the terms. Debt ratio _ (a) The percentage of total assets financed by creditors. The formula for the debt ratio is total debt/total assets (BPP 2009) Return on assets _ (b) A measure of the effectiveness with which management utilizes a company's resources, regardless of how those resources are financed.
8 pages (2000 words) Assignment
Corporate finance - WACC - Cash Flow - Measuring Return on Investment - discounted cash flow techniques - Financing Decisions -
The following discussion entails the significance of all three approaches: A. ACCOUNTING EARNINGS VERSUS CASH FLOWS One of the most fundamental approaches in understanding and analyzing the return on investments is to see whether ROI should be analyzed based on accounting earnings or cash flows.
19 pages (4750 words) Assignment
Statements of cash flows
Here, borrowing is considered a financing activity and since overdrafts are borrowings for a short time, they are thus added to cash flow statement. Moreover, they are included in cash flow statement because their payment is based on demand from cash management and thus composes what is called cash and cash equivalent.
7 pages (1750 words) Research Paper
Capital Expenditure and Depreciation
Some costs which are included in the capital expenditure are the following: delivery of the fixed asset, improvement of fixed asset, legal costs of purchasing property and installation of fixed assets (Porter, 2011). Capex is shown in the balance sheet. It is very important to categorize this expenditure without any mistake in the accounting system because miscalculations will lead to the asset and liability mismatch (Albrecht, 2011).
6 pages (1500 words) Essay
Behavioural Finance
By careful formulation of usual assumptions, many unresolved issues can be sorted. In particular, vexed problem of integrability can be assigned in a better way (Newman, 1995). 5) Slope of an indifferent curve at a certain point x may be denoted by
8 pages (2000 words) Essay
Find out how much would it cost
to get a custom paper written by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email