NPV of $1 everyday?
Will you take $5,000 today or $1 everyday for the rest of your life? What's $1 everyday worth today?
How would you answer this in the interview?
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PV= $5000 I= 5%/365. N= 60*365 PMT=0 Solve for FV
PV=0 I=5%/365 N=60*365 PMT=$1 Solve for FV
depends on int rate. it would be cashflow/int rate so say 6% a year
$1/.06/365
perpetuity formula is what youre looking for
From another perspective, you can keep PV/FV/PMT/N as the constants and make I the variable, and set the two equations equal to each other. That is, what interest rate would you have to get in order to make the two choices equal? Knowing that, what do you believe about the likely value of each option?
And that's why they pay you the big bucks.
5K today, i wouldn't even notice $1 a day. Don't need a DCF model to figure that out.
This. Could use that $5k to take another networking trip to NYC, which could potentially increase my income in the future.
Its also about matching your cash inflows with outflows.
Now if I am allowed to sell this contract for $1 a day in perpetuity, then I obviously would take that contract and sell it for its present value
A buck a day, so $365.25 a year. Assuming this is risk free, or you’re guaranteed the $1, then your discount rate is 3.3% (current UST 30yr bond rate). PV is 365.25/3.3%=$11,068 > $5,000
$1 everyday if it's a magical dollar bill in my pocket...there might be a day I desperately need something from the vending machine
How am I supposed to invest $1 each day? Zero transaction fees?
$1 divided by daily risk free rate
I'd obviously go for the $5000 today. No need for any calculations. Can invest this $5000 immediately in anything you want, most likely generating a higher return.
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