基础会计(英文版)(第二版)Supplement3 Applications of Present Value.ppt

Supplement 3 Applications of Present Value The Concept of Present Value The present value of an expected future cash receipt is the amount that a knowledgeable investor would pay today for the right to receive that future amount. The Concept of Present Value The present value depends on three factors: The expected money amount to be received in the future The length of time until the future amount will be received The rate of return (called the discount rate) required by the investor. The Concept of Present Value P = present amount F = Future amount PT: the length of time ?FPT: the discount rate FT: the difference between F and P The Concept of Present Value An Example: A specific investment is expected to result in a 100 yuan cash at the end of one year. An investor requiring a 10% annual rate return would be willing to pay 90.9 yuan today for this future amount. The Concept of Present Value An Example: If the 100 yuan is to be received two years in the future, the investor would pay only 82.6 yuan for the investment today The Concept of Present Value Set the future value as 1 yuan. The present value of 1 yuan is : p = 1/ (1+ i )n The Concept of Present Value An Example: If the above-mentioned investor expects to earn 100 yuan from his investment each year of the next three years, how much should he invest now? Accounting Applications of the Present Value Concept Guangli Co. Ltd issued an installment note payable with a face amount of 9 600 yuan and no stated rate of interest. It is to be paid in 24 monthly installments of 400 yuan each. The present value of this note, discounted at the realistic market interest rate of 1% per month, was 8 497 yuan The difference between the 9 600 yaun face amount of the note and its present value of 8 497 yuan is 1103 yuan, which represents the interest charge included in the face amount. Accounting Applications of the Present Value Concept If Guangli Co. Ltd uses th