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Perform Calculations
When you have entered your cash flows, press the Analyze button and you will return
to the main menu.
View Results
To view the results of the analysis, press the View Output button. You may then select
"Table A: Results of DCF Analysis" to view the various figures of invesment merit, or
either of two graphs: a cash flow diagram, or a present value profile. (Note: If you are
working with more than about 50 cash flows, don't bother making a cash flow diagram.
You'll not be able to distinguish one cash flow from another.)
To construct the present value profile, you will be asked to provide a range of discount rates
over which the profile will be constructed. For any given range, the program calculates
the NPV at 11 equally spaced discount rates throughout the range.
Printing Output
To print copies of either of the graphs, go to the Main Menu
and click on the black circular button corresponding to the chart you wish to print.
Clear
The Clear button on the Main Menu clears all the tables so you can analyze a new
set of cash flows. If you want to save your work, use the Save As command in your software
Page 1
Instructions
Page 2
Definitions
Net Present Value = The increase or decrease in wealth created by the cash flows
under analysis; the present value of the indicated cash flows discounted at the specified
discount rate. Cash flows are assumed to occur at equal time intervals and at the end of the
period.
Internal Rate of Return = The discount rate that makes the Net Present Value of the given
cash flows zero. If the computer does not find an IRR after 20 trials, or if the time 0
cash flow is positive, the IRR in Table A will show an error message. When other
figures of merit show strange results or error messages, this usually indicates that the figures
are not relevant for the cash flow analyzed.
Equivalent Periodic Annuity = The annuity with a present value equal to the Net Present Value
of the cash flows at the given discount rate. The life of the annuity equals that of the cash flows.
Net Terminal Value = The terminal period cash flow with a present value equal to the Net Present
Value of the cash flows at the given discount rate.
Payback Period = The number of periods required for the undiscounted cash inflows to equal
the original investment.
Selected Examples
1. Mary invests $100 today at 11.3% annual interest. What will this investment be worth in
70 years? Ans: Input cash flows as a 70 period, zero-value annuity, with a time 0 cash
flow of $100.
NTV = $179,746.94
2. Bill wants $130,000 in 19 years to pay for his daughter's education. How much must he
invest today at 7.26% annual interest? Ans: Input cash flows as a zero-value annuity from
Year 1 to 18; with a time 0 cash flow and a Year 19 cash flow of $130,000..
NPV = $34,326.17
3. Alonzo needs a $90,000 morgage loan. What will his monthly payments be on a 30-year,
fixed rate loan at 9 7/8% annual interest? Ans: Input as a 360 period, zero-value annuity
with a time 0 cash flow of $90,000 and an interest rate equal to .09875/12 per period.
Equivalent Periodic Annuity = $781.51
4. Chun-yu can afford to pay $900 per month in mortgage payments. How much can he
Page 3
Definitions
borrow on a 25-year, fixed rate loan at an annual interest rate of 8 3/4%? Ans: Input as a
300 period annuity of $900, a time 0 cash flow of 0 and an interest rate of .0875/12.
NPV = $109,469.92
Page 4
MainMenu
MAIN MENU
Cash Flows
PV Profile
Page 5
MainMenu
DCF
Page 6
DCFInput
DCF Inputs
Cancel
Enter the DISCOUNT RATE
(cost of capital) in percent,
i.e. enter 15% as 15 12 %
Select One
Do the cash flows contain...
Page 7
AnnuityInput
Annuity/Gradient Features
Cancel
Enter the LAST PERIOD
of the annuity or gradient 10
Page 8
Chart Escape
Chart Navigator
Page 9
BarChart Escape
Chart Navigator
Page 10
OutputViewer
DCF Output
Page 11
Cash Flow Diagram
$60.0
$40.0
$20.0
$-
0 1 2 3
$(20.0)
Dollars
$(40.0)
$(60.0)
$(80.0)
$(100.0)
$(120.0)
11/19/2017 Analysis for Financial Management, 6th Ed. by Robert C. Higgins Published by Irwin/Mcgraw-Hill
Period
$(80.0)
$(100.0)
$(120.0)
Period
11/19/2017 Analysis for Financial Management, 6th Ed. by Robert C. Higgins Published by Irwin/Mcgraw-Hill
CashFlow
CASH FLOWS
Page 14
CFAnalysis
FIGURES OF MERIT:
Page 15
Present Value Profile
$20.0
$10.0
$0.0
0.00% 7.50% 15.00% 22.50% 30.00% 37.50% 45.00% 52.50% 60.00% 67.50% 75.00%
($10.0)
Net Present Value
($20.0)
($30.0)
($40.0)
($50.0)
($60.0)
($70.0)
11/19/2017 Analysis for Financial Management, 6th Ed. by Robert C. Higgins Published by Irwin/Mcgraw-Hill
Discount Rate (%)
($50.0)
($60.0)
($70.0)
11/19/2017 Analysis for Financial Management, 6th Ed. by Robert C. Higgins Published by Irwin/Mcgraw-Hill
PVProfile
0.00% $10.0
7.50% ($6.5)
15.00% ($19.5)
22.50% ($29.8)
30.00% ($38.2)
37.50% ($45.1)
45.00% ($50.8)
52.50% ($55.6)
60.00% ($59.7)
67.50% ($63.2)
75.00% ($66.2)
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Sheet4
Yr 0 -130
1 10 10
2 10 20
3 10 30
4 10 40
5 10 50
6 10 60
7 10 70
8 10 80
9 10 90
10 10 100
11 10 110
12 10 120
13 10 130 13
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