Home Depot Present Value Essay

Given that the total profit over 8 years is $1.2375B (or $155M per year for 8 years), we will now compute the Present Value of this amount using the following formula:

If interest rates increased then future values would also increase but the present value decreases. Financial analysts recommend that individuals purchase annuities when the interest rates are higher because of the higher payout amount (Ritchie, n.d.). The formula to calculate future value (FV) is FV = P * (1 + R)n. If someone invested five thousand dollars for ten years with a 6% interest rate the FV is $10,272,32..

| According to the theory underlying the present-value formula, would you prefer to receive (a) $75 one year from now, (b) $85 two years from now, or (c) $90 three years from now, if the relevant market interest rate is 10 percent and will remain at 10 percent for the next three years?Answer

The intent of this report is to provide a financial analysis* (FA) for the Home Depot Inc. (the Company). Explicitly, the following analysis shall review macroeconomic items* that possible affect the Company’s dealings.

Account A - Present Value with Discount rate of 6% = 6500/(1+6%) = 6500/1.06 = $6,132.08

What is the present value of a set of positive cash flows that are growing at 15% and the relative discount rate is 12%

For example, an investment of $1,000 today at 10 percent will yield $1,100 at the end of the year; therefore, the present value of $1,100 at the desired rate of return (10 percent) is $1,000. The amount of investment ($1,000 in this example) is deducted from this figure to arrive at net present value which here is zero ($1,000-$1,000). A zero net

What would the present value of the account be if the discount rate is only 4%?

Determine the present value of regular payments of $250 to be made at the end of each of the next 50 years. The annual effective interest rate is 5%.

1. $5,500 deposited four years ago has grown to $7,000. What semiannual compounded rate of interest

1. The net present value model handles risk by discounting expected cash flows from a project by the firm's cost of capital. This discount rate is based upon the firm's average risk level. To the extent that a project has more than or less than average risk, the use of the firm's cost of capital will not make the appropriate risk adjustments. The basic model also does not explicitly consider the variability of a project's returns.

Present value of an annuity: Transit Insurance Company has made an investment in another company that will guarantee it a cash flow of $37,250 each year for the next five years. If the company uses a discount rate of 15 percent on its investments, what is the present value of this investment? (Round to the nearest dollar.)

In the original scenario, the interest rate given is 8% and the total present value for future cash flows of years one through five equals $425.78MM. When the interest rate decreases to 5%, the total present value for the future cash flows of years one through five increases to $460.69MM. On the contrary, when the interest rate increases to 15%, the total present value for the future cash flows of years one through five decreases to $359.18MM. As a result, the conclusion can be made that there is an inverse relationship between interest rate and net present value. According to James Wilkinson (2013), “As a rule the higher the discount rate the lower the net present value with everything else being equal.” Hence, Wilkinson (2013) affirms that the investment which yields the highest net present value should always be chosen. Therefore, in this scenario and all other things being equal, Home Depot should choose the investment with the 5% interest rate, as it has the greatest net present value.

First, we find the price of the five-year annuity, assuming that the annual payment is $1:

There is possibility to use, with respect to the object of valuation, several methods for valuation of a company in practice. One of the most important and highly used group of methods are yield methods. They are usually called Discounted Cash Flows (DCF) methods. Value of a company is derived from present value of future incomes connected with the ownership of a company. The core of these models is working with time value of future incomes investor gets in case of realization of an investment. There are several possibilities to work with future incomes in DCF