C4

Question 1

Timeline

Answer 1

A linear representation of the timing of potential cash flows

Question 2

Stream of cash flows

Answer 2

A series of cash flows lasting several periods

Question 3

3 rules of time travel

Answer 3

1) only values at the same point in time can be compared or combined

2) to move a cash flow forward you compount it
FV=Cx(1+r)^n

3) To move a cash flow backwards in time, you discount it
FV=C/(1+r)^n

Question 4

PV of a cash flow

Answer 4

nsomn=0 Cn/(1+r)^n

Question 5

Future value of cash flow

Answer 5

PVx(1+r)^n

Question 6

Net present value

Answer 6

Cash inflows (benefits)-cash outflows (costs)

Question 7

Perepuity

Answer 7

When a constant flow will occur at regular intervals forever

C/r

Question 8

Annuity

Answer 8

When a constant flow will occure at regular intervals for a finite number of intervals for N periods

Question 9

PV annuity

Answer 9

Nsomn=1 C/(1+r)n

Question 10

FV annuity

Answer 10

C x (1+r)^n-1/r

Question 11

Growing perpetuity

Answer 11

a constant stream of flows that occure at regular intervals and grow at a constant rate forever

C/r-g

Question 12

Growing annuity

Answer 12

A constant stream of flows that occure at regular intervals and grow at a constant rate for a finite number of intervals for N periods

C x 1/r-G (1-(1+g/1+r)^n)

Question 13

Solving cash payments

Answer 13

C=P/ 1/r (1-1/(1+r)^n)

Question 14

Interal rate of return

Answer 14

The interest rate that sets the net present value of the cash flows equal to zero