Economic Decision Making Practical Examples

Interest Number of periods Payments Made Each Period Future Value Using Excel for Year 3: Present Value of Year 3 Costs: ( )/(1+0.10)^3= $ Finding Present Value from Future Value

Interest Number of periods Payments (Costs) for Each Period Additional Future Value Using Excel to find the present Value for the 5 years of $1500 costs each year : Present Value of the 5 years: ( )/(1+0.10)^1= $ ( )/(1+0.10)^2= $ ( )/(1+0.10)^3= $ ( )/(1+0.10)^4= $ ( )/(1+0.10)^5= $ $ if Payments (Costs) made at end of period Finding Present Value from a Series of Payments

Alternatively we can use the NPV (Net Present Value) function in Excel to capture values of each year for this cash flow diagram. Using NPV to find Present Value with a Series of Different Values

Straight-Line Depreciation Initial Cost Salvage Value Periods

Declining Balance Depreciation Initial CostSalvage Value Total Number of Periods Period for which depreciation Is being calculated Depreciation in the jth year

Sum-of-Years-Digits Depreciation Initial Cost Salvage Value Total Number of Periods Period for which depreciation Is being calculated

Using the PMT Function to find Payments on a Loan Principal Number of Periods 30 years*12 months Montlye Interest rate Annual rate/12