Valuation Valuation of single cash flows A single cash flow will be discounted by the appropriate rate and time, using Table A2.1. Read across for the discount rate and down for the number of periods. Multiply the cash flow by the present value interest factor (PVIFi,n) to get the present value of the cash flow. Valuation of multiple cash flows Valuation of a series of equal cash flows is the valuation of an annuity stream. If the discount rate is the same and all cash flows are the same, then you have an annuity (if the cash flows go on indefinitely, it is a perpetuity). The annuity can be valued by using Table A2.2. You will have the cash flow, the discount rate and the number of periods of the same cash flow, so read across for the interest rate and down for the number of periods. Multiply the cash flow by the present value annuity interest factor (PVAIFi,n) to get the present value of the annuity stream. With the valuation of the annuity, it is assumed that the first cash flow occurs at the end of year 1. If the cash flow starts immediately there is an adjustment that needs to be made. Multiply the PVAIFi,n by (1+interest rate). This reflects the fact that the first cash flow is one year earlier. All the present and future value tables assume that the cash flow is at the end of the year. With valuation you are bringing future cash flows back to a present value. Valuation of bonds Bonds will usually have a fixed life, eg, five years, ten years, fifteen years, etc. A very small number of bonds are irredeemable, which means they are perpetuities, the bond will keep paying cash flows indefinitely. A bond will have a face value at which it is issued and redeemed. This face value is £100 in the UK and $1,000 in the US. There are other terms that are used for this value; nominal value, redemption value. So the bond will be issued at £100 and at the end of the bond’s life, at maturity it will be redeemed for £100. The bondholder has lent the company a £100 and at the