Explore
For Enterprise
Join for Free
Log In

Explorar
Buscar
For Enterprise
Inicia Sesión
Únete de forma gratuita

1.3 Present Value of Multiple Cash Flows

Loading...

Valuation for Startups Using Discounted Cash Flows Approach

Universidad Yonsei

4.3 (161 calificaciones) | 6.3K estudiantes inscritos

Curso 1 de 5 en Valuation and Financial Analysis For Startups Programa Especializado

Discounted cash flow method means that we can find firm value by discounting future cash flows of a firm. That is, firm value is present value of cash flows a firm generates in the future. In order to understand the meaning of present value, we are going to discuss time value of money, first. That is, the value of $100 today is different from the value of $100 a year later. Then, what should be the present value of $100 that you are going to receive in 1 year? How about the value of $100 dollars that you are going to receive every year for next 10 years? How about forever? After taking this course, you are going to be able to find the present value of these types of cash flows in the future. Unlike most of finance courses, in this course, you are going to learn how to use excel to find present value of future cash flows. In addition to the present value, you are also going to learn how to find future value given investment; interest rate given investment and future cash flows, payments given interest rates, number of periods to wait given investment and interest rate, and so on. After learning the concept and how to find the time value of money, you are going to apply this to real world examples and company valuation. After taking this course, you will be ready to make an estimate of firm value by discounting its cash flows in the future.

Destrezas que aprenderás

Discounted Cash Flow, Enterprise Value, Bond Valuation, Present Value

Revisiones

4.3 (161 calificaciones)

5 stars
93 ratings
4 stars
37 ratings
3 stars
22 ratings
2 stars
5 ratings
1 star
4 ratings

MS

Jun 04, 2017

To the point, well-explained, perfectly building up to reveal in few hrs how to compute Enterprise value....Just what I was looking for.

LN

May 19, 2019

The teacher is really great, honestly, he made more sense than my finance teacher and I completed my bachelors in finance.

De la lección

Time Value of Money (1)

Investing money is important decision because a dollar today is worth more than a dollar in the future. In this module, you will look at several methods for calculating future value as well as present value. After this module, you can solve challenging examples with excel.

Welcome Video1:26

1.1 Future Value9:16

1.2 Present Value6:50

1.3 Present Value of Multiple Cash Flows5:56

1.4 NPV of Multiple Cash Flows4:05

1.5 Present Value of Annuity3:56

Impartido por:

Hyun Han Shin
Professor

Transcripción

So far you have learned how to find the present value of future lump sum cash flow. Next, let's learn how to find present value of multiple cash flows. That is cash flows are more than once in the future. For example, you're supposed to receive $100 next year, $200 in two years, and $300 in three years. This kind of stream of cash flows is called multiple cash flows. In order to find present value of multiple cash flows, you need to find present value of each cash flow first and then sum the present values of each cash flow. The general form of calculating PV of multiple cash flows is the formula in the slide. That is PV = CF1/(1+r) raised to the power of 1 + cash flow in time 2 divided by the 1 + r, raised to the power of 2 +, so and so, up to cash flow in time n divided by 1 plus rate raised to the power of n years. Let's take a look at an example. Suppose you have an opportunity to invest in a business that will pay you $100,000 in one year, $200,000 in two years, $300,000 in three years, and $400,000 in four years. You can earn 10% per year compounded annually on a mutual fund that has similar risk. That means that the discount rate, you need to apply to this investment opportunity is 10%. In order to find the present value of these cash flows, you need to find the present value of each cash flow first. We can present these cash flows in a diagram as it is shown in this slide. First, let's find PV of CF in year 1 using Excel. Why don’t you just start Excel in your computer and open Excel template. Since we are looking for PV we are going to use template for PV. In the template for PV, type in 100,000 for FV. Next type in 10% for RATE, and 0 for PMT. Next type in 1 for NPER. Then you get PV of 90,909.09. That is, $100,000 in 1 year, is equal to, $90,909 as of today. As you already learned, PV calculated in Excel is negative, but you interpret that as a positive value. Next, let's find PV of CF in Year 2. We're going to use the same PV template. What you need to do is to change the value for FV from 100,000 to 200,000. And the value for NPER from 1 to 2. And you get PV of 165,289.26, that is $200,000 in two years is equal to $165,289 as of today. Next, let's find PV of cash flow in time 3. In the previous solution, you need to change FV from 200,000 to 300,000, and NPER from 2 to 3. In the same template you need to change the value for FV from $200,000 to $300,000. And the value of NPER from 2 to 3. And you get PV of 225,394. That is $300,000 in 3 years is equal to $225,394 as of today. Next, let's find PV of cash flow in year 4. In the same template you need to change the value for FV from 300,000 to 400,000 and the value of NPER from 3 to 4. Then you get PV of 273,205. That is $400,000 in year 4 is equal to $273,205, as of today. Now you need to add all PVs. As you can see in this table, PV of 4 years of cash flows is $754,798. If you're asked to pay less than this amount of PV for the business, then investment opportunities worth to take. For example if the cost of investment is $700,000. Your profit is $754,798 - $700,000 of cost. So the profit is $54,798 which is called the Net Present Value or NPV for short. NPV is what you really earn after considering the cost of capital of 10%.

Explora nuestro catálogo

Inscríbete de manera gratuita y obtén recomendaciones personalizadas, actualizaciones y ofertas.

Coursera provides universal access to the world’s best education, partnering with top universities and organizations to offer courses online.

© 2019 Coursera Inc. Todos los derechos reservados.

Consíguelo en Google Play

Coursera
Acerca de
Liderazgo
Empleo
Catálogo
Certificados
Certificados MasterTrack™
Grados
For Enterprise
For Government
Para el campus

Comunidad
Learners
Partners
Developers
Beta Testers
Translators

Conectar
Blog
Facebook
LinkedIn
Twitter
Instagram
Youtube
Blog de Tecnología

Más
Términos
Privacidad
Ayuda
Accesibilidad
Prensa
Contacto
Directorio
Afiliados