Jan Feb March April

Sales forecast 10000 15000 13000 20000 these are sales but these are not cash flows
cash inflow 40%*C3 % used
cash inflow = positive from sales 4000 6000 5200 8000 cash sales 40%
cash inflow = positive from sales 3000 4500 3900 sales payment received 1M later 30%
cash inflow = positive from sales 3000 4500 sales payment received 2M later 30%
TOTAL cash inf 4000 9000 12700 16400 SUM
raw materials forecast for
ORDERS -7000 -10500 -9100 -14000 unknown these are orders, these are not cash flows
cash outflow 40%*C9 % used
cash outflow = negative from raw materi -2800 -4200 -3640 -5600 40%
cash outflow = negative from raw materials -4200 -6300 -5460 60%
TOTAL cash out -2800 -8400 -9940 -11060

NET CASH FLOW 1200 600 2760 5340 sum yellow

Conclusion: : the net cash flow is positive every month. The company does NOT risk bankruptcy!
Assume you are working for this company and that your boss requests a cash planning.
Sales forecast is indicated. 40% of your Clients pay cash. The other clients pay after one month or two months (half each).
Raw materials are purchased by your company one month in advance: they are worth 70% of next month’s forecast sales.
1.       CASH PLANNING You pay with a one-month delay (40%) or a two-month delay (60%).
What is the total present value of this ‘mixed stream’ of cash flows if interest rates are 6%?
In 1 year: +10,000 DKK (Danish Krones)
In 2 years: +12,000 DKK
In 3 years: +8,000 DKK

Year0 Year1 Year2 Year3

number of years to be discounted 1 2 3
Future values 10,000.00 12,000.00 8,000.00
Present Values 9,433.96 10,679.96 6,716.95
E8/(1+6%)^(E7)
Total Present Value 26,830.87 DKK
sum pv
Conclusion: you could buy or sell this project TODAY at a price of 26,830 Danish Krones
830 Danish Krones
What is the value of this bond, below?
Issued by TESLA CORP; For 10 years
Face value 1,000 euros
Coupon rate 4%
…if current yield for comparable bonds is 2% ?

solution without using the annuity formula

the discount rate is 2%, also called the yield
Year0 Year1 Year2 Year3 Year4 Year5 Year6 Year7 Year8 Year9 Year10
number of years to be discounted 1 2 3 4 5 6 7 8 9 10
Future values=cash flows 40.00 40.00 40.00 40.00 40.00 40.00 40.00 40.00 40.00 1,040.00
Present Values 39.22 38.45 37.69 36.95 36.23 35.52 34.82 34.14 33.47 853.16
G11/(1+2%)^(G10)
Total Value of the Bond 1,179.65 sumPV

solution using the annuity formula

the discount rate is 2%, also called the yield

ANNUITY
annual cash flow 40.00 4%*1000
yield 2% per year
duration of the annuity 10 years
present value of the Annuity of 359.30 C20/C21*(1-(1/(1+C21)^(C22)))

PRINCIPAL
future value 1,000.00
present value of the Principal 820.35 C26/(1+2%)^10

Annuity+Principal 1,179.65 C23+C27

conclusion: both are good and lead to the same result: a price of 1,179.65 euros
This bond could be bought or sold TODAY at a price of 1,179 euros