3-11 Present Values Example You just bought a new computer for $3, 000. The payment terms are 2 years same as cash. If you can earn 8% on your money, how much money should you set aside today in order to make the payment when due in two years? Py 3000 2=$2,572 (1.08) Irwin/McGraw-Hill CThe McGraw-Hill Commpanies, Inc, 2001
©The McGraw-Hill Companies, Inc.,2001 3- 11 Irwin/McGraw-Hill Present Values Example You just bought a new computer for $3,000. The payment terms are 2 years same as cash. If you can earn 8% on your money, how much money should you set aside today in order to make the payment when due in two years? 2 $2,572 (1.0 8) 3000 PV = =
3-12 Present Values Discount Factor = DF=PV of S1 DE (1+r) DIscount Factors can be used to compute the present value of any cash flow. Irwin/McGraw-Hill CThe McGraw-Hill Commpanies, Inc, 2001
©The McGraw-Hill Companies, Inc.,2001 3- 12 Irwin/McGraw-Hill Present Values Discount Factor = DF = PV of $1 Discount Factors can be used to compute the present value of any cash flow. DF r = t + 1 (1 )