How to calculate present value (PV)? Help!

Here's my thought: Deal with 2% response first. You'd get 5,000 responses the first month (250,000 x 2%). Multiply that times the value of $170/annually each or $850,000 the first year. I'd use PV in Excel to calculate what the PV is of $850,000 in a year, then another $850,000 in 2 years, etc through year 7. I think you need an interest rate (your discount rate?) to figure out how money will depreciate over time. This won't calculate the month by month PV... but the year by year should pretty close. And that kind of money I'd take a little less accuracy!

Good luck.

wow, you are pretty good at this! Well my professor asked for the PV for month 1, and you know how that goes, give em' what they ask for...so I probably could calculate the year, and then divide that number by 12?

Jacob

Check out this link...

http://support.microsoft.com/search...dType=ANY&maxResults=25&Titles=false&numDays=

If it doesn't work, search the MS KB for "PV". There are a lot of variables to consider when calculating this!

Also note that just because your Prof wanted 1 month, did he mean a 4-week or 5-week month? In our publishing world we work on a 4.3 week month.

Don't know what business Benson is in, but I'd trade our .001 ROR for his .02 anyday!

Hope that helps,

Smitty

From Excel help files:

PV

Returns the future value of an investment based on periodic, constant payments and a constant interest rate.

Syntax

FV(rate,nper,pmt,pv,type)

For a more complete description of the arguments in FV and for more information on annuity functions, see PV.

Rate is the interest rate per period.

Nper is the total number of payment periods in an annuity.

Pmt is the payment made each period; it cannot change over the life of the annuity. Typically, pmt contains principal and interest but no other fees or taxes. If pmt is omitted, you must include the pv argument.

Pv is the present value, or the lump-sum amount that a series of future payments is worth right now. If pv is omitted, it is assumed to be 0 (zero), and you must include the pmt argument.

Type is the number 0 or 1 and indicates when payments are due. If type is omitted, it is assumed to be 0.

Jacob,

Below is one approach--note the example assumes that the $170 per account is received as a 'lump' either at the beginning of the period (=year in this case), or at the end. In other words, the $170 is not spread out over the course of the year; if that's the case, the formulas have to be modified slightly.

HTH, and if you get an 'A' for your assignment, then please send me 10% of your first paycheck after you start working for BigDistributors, Inc. (or LargeMarketingFirm.com, etc.)

--TomTom

rrdonutz, you are right on target! this is exactly what i was looking for, now i understand so much better! Okay, here's my question though, I'm a little confused on the PV (1) and the PV (0)?

Also, the $170 is the worth of each account per year, however, my question is asking for the PV in month 1, which is how the money is collected, in 12 monthly payments over the course of the year, so really there are about 84 payments over the course of 7 years, basically 170 divided by 12, comes out to roughly $14.16 per month. I guess I should have stated that, but I'm trying to read into this question more, cause professor is really trying to make this a hard one...

Thanks

Great clarification... It's actually $14.16 per month for 84 months. I think that's a really straight forward PV formula. I think PV should easily calculate the present value of a stream of payments of $14.16 for 84 periods... based on a monthly (or per period) interest rate (i.e. the amount money will depreciate over time). Again, you mentioned a 10% discount... but that doesn't seem to be a realistic amount to depreciate money... seems WAY too high. yes, I DO remember how profs can be... good luck; Seems like you have a lot of great suggestions/ideas to go with here! You should do well.

Benson99

To convert it to months, just divide the 10% hurdle rate by 12 and you got .8333 % (.00833 in decimal) which is your interest rate per month. The formula is =pv.10/12,84,250,000*.02*170/12) assuming start of proceeds is at the end of month meaning if start month is Jan, then proceeds is Jan 31. If start is on Jan. 1, put , 1 in your formula inside PV

correction of formula =pv( not pv.