6
Discounted Cash Flows and Valuation
Leon Neal/AFP/Getty Images/NewsCom
Learning Objectives
Explain why cash flows occurring at different times must be adjusted to reflect their value as of a common date before they can be compared, and compute the present value and future value for multiple cash flows.
Describe how to calculate the present value and the future value of an ordinary annuity and how an ordinary annuity differs from an annuity due.
Explain what a perpetuity is and where we see them in business, and calculate the value of a perpetuity.
Discuss growing annuities and perpetuities, as well as their application in business, and calculate their values.
Discuss why the effective annual interest rate (EAR) is the appropriate way to annualize interest rates, and calculate the EAR.
On January 18, 2010, the Board of Directors at Cadbury PLC, the second-largest confectionary company ...
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