3 rule for time traveling with cashflows
- Only values / cashflows that occur at the same time can be compared or combined.
For this the values must be in the same units or moved in time. - Move forward in time = compound
Compound interest = ränta på ränta
FV = C * (1+r)^n - Move backward in time = discount
PV = C / (1+r)^n
What is the easiest way to know if you should do a investment?
Draw a timeline from year 0 to year n (n=years in the question)
- Calculate the present value of cash flow stream? (kassaflödet)
- Calculate the future value of cash flow stream?
- PVn = C / (1+r)^n
- FVn = PVn * (1+r)^n
Two types of cash flow streams:
Perpetuities and annuities
Perpetuities?
A stream of cash flow that occurs in regular intervals and lasts forever.
En ström av kassaflöden som inträffar under regelbundna intervall och för evigt.
PV = C / r
Annuities?
A stream of N equal cash flows paid at regular intervals.
En ström av N antal likvärdiga kassaflöden vid regelbundna intervall.
What’s the difference between annuities and perpetuities?
Annuity ends after a fixed number of payments while perpetuities lasts forever.
Betalning på 1 miljon varje år i 20 år, interest rate 5%. Vad ska man tänka på?
Sätt 1 miljon som 1.
Om betalningen börjar idag använd 19 år som n.
What is a growing perpetuity?
What is a growing annuity?
A increasing cash flow stream of C which will last forever.
A stream of N growing cash flows paid at regular intervals.
IRR?
Internal Rate of Return (Internränta)
The return of an investment that makes present values of cashflow = 0.
Ett sätt att mäta förväntade lönsamheten i en potentiell investering.
Vad är IRR lätt att lösa för?
Easy to solve for perpetuities and harder to solve for annuities.
