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Essay / Research Paper Abstract
This 10 page paper shows the student how to perform present value calculation including how the discount factor is calculated. The paper then looks at three business plan and assesses which is the most risky and should have the highest discount factor when it is being assessed and which is the safest and should have the lowest discount factor. The bibliography cites 4 sources.
Page Count:
10 pages (~225 words per page)
File: TS14_TEPVcalc.rtf
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Unformatted sample text from the term paper:
to be used as the discount rate is 5% we can use this information to give the value of the future amount in todays money. To calculate the discount
rate we need to divide 1, as this is the first year, by 1.05, this will give us the discount factor of 0.952381
The next stage is multiplying the amount to be received in one year by the discount factor, this gives us the present value. This shows us the present value of
an investment worth 1,500 a year in 1 year is 1,428.57 Table 1 Present value of 1,500 to be received in 1 year Value in a year (a) Discount factor
(b) Present value (a x b) 1,500 0.952381 1,428.57 Section B. We can apply the same to different terms, with the same process. The division by 1 takes place
in the first year, in this case there will be the 1/1.07 ads the discount rate is 7%. In subsequent years we take the discount factor fro the year before
and divide it by 1.07. The benefit of using present values is that it will allow for the comparison of different terms. In this case we have two accounts A
and B, A is for one year and B is for two years. The first stage is to calculate the discount rates. The student will use the one year
rate only for caulking the present value of account A and the 2 year figure only for calculating account B present value Table 2 Discount factors for 2 years
at 7% Year Discount factor Year 1 (1/1.07) 0.934579 Year 2 (take year 1 and divide by 1.07) 0.890076 Table 3 Present value of bank account A
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