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Question on Present Value of Future Cash Flow

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07-22-2017 , 07:11 PM

jimmyb23

journeyman

Join Date: Nov 2016 Posts: 236

Hi. I'm currently reading the Dhandho Investor by Pabrai. There's a chart in the first part of the book on Present Value of Future Cash Flow.

Scenario:

Patel invests $5,000 in a motel business
Annualized rate of return is 400%
Runs the business for 10 years and is sold for what it was bought for at $50,000
Discount rate is 10%

I understand the figures for present value of future cash flow from year 1 to year 10

What's not clear to me is how $19,277 was calculated.

Here's the graph:

Thanks

Last edited by jimmyb23; 07-22-2017 at 07:18 PM.

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07-22-2017 , 07:20 PM

ibavly

2010 PSOP Champion

Join Date: Feb 2010 Posts: 24,513

easy way
15000*1.1^-1+15000*1.1^-2+15000*1.1^-3+15000*1.1^-4+15000*1.1^-5+15000*1.1^-6+15000*1.1^-7+15000*1.1^-8+15000*1.1^-9+15000*1.1^-10+50000*1.1^-10

fast way
http://financeformulas.net/formulaim...ayment%202.gif
15000*(1-(1+.1)^-10)/.1+50000*1.1^-10

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07-22-2017 , 07:39 PM

jimmyb23

journeyman

Join Date: Nov 2016 Posts: 236

Quote:

Originally Posted by ibavly

That gives me $111,445, I'm looking to how he got $19,227.

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07-22-2017 , 09:34 PM

river_tilt

old hand

Join Date: Apr 2006 Posts: 1,968

50,000*1.1^-10.

It's one of the terms in ibavly's sum - it's not the final answer.

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07-22-2017 , 11:47 PM

jimmyb23

journeyman

Join Date: Nov 2016 Posts: 236

Quote:

Originally Posted by river_tilt

50,000*1.1^-10.

It's one of the terms in ibavly's sum - it's not the final answer.

Thank you. Is there an excel formula to calculate this figure?

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07-23-2017 , 02:35 AM

ibavly

2010 PSOP Champion

Join Date: Feb 2010 Posts: 24,513

Yes, you can literally enter it as typed, just add an = at the beginning.

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07-23-2017 , 11:29 AM

jimmyb23

journeyman

Join Date: Nov 2016 Posts: 236

I appreciate the help. Would it not be possible to use the NPV formula to get $19,277.16?

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07-23-2017 , 06:32 PM

ibavly

2010 PSOP Champion

Join Date: Feb 2010 Posts: 24,513

That is the npv formula

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