...Week 6: 1. Why do we say money has time value? When speaking of time value of money, it refers to the fact that money to be received or paid at different times is worth different amounts as time moves forward. 2. Why is it important for business managers to be familiar with time value of money concepts? This is important for managers to understand because they are expected to maximize the value of todays and all future dollars. Understanding money has a different value at different times will help them make better decisions for future business. 3. Define Present Value. Present value tells us what future money would be worth if we had that money today. 4. Define Future Value. Future value is the value of the item or cash at a specific time/date in the future. 5. What are present value and future value interest factors? (as in PVIF and FVIF) - PVIF is the factor that can be used to make calculations for finding the present value of a series of values. PVIF = FV (1/(1+r)t ) - FVIF is used to calculate the future value of an amount per dollar of its present value with considerations of interest. FVIF = PV ( (1+r)n – 1 / r) 6. (calculating future value) You buy a 6 year, 8% CD for $1,000. Interest is compounded annually. How much is it worth at maturity? r = .08 n = 6 PV = 1,000 FV = $1,586.87*** 7. (calculating present value) What's the present value of $1,000 to be received in 8 years? (Your required...
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...Using Financial and Business Calculators Daniel J. Borgia Table of Contents Texas Instruments (TI) BA-35 SOLAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Texas Instruments (TI) BA II PLUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Hewlett Packard (HP) 12C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27 Hewlett Packard (HP) 17BII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39 Hewlett Packard (HP) 19BII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53 Using Financial and Business Calculators Most business and financial calculators offer a multitude of powerful functions. The purpose of this guide is to provide students with an easy and quick reference for some of the most commonly used financial functions. More detailed operational descriptions can be obtained from the owner’s manuals that accompany the calculators. This calculator guide discusses the basic functions of five business and financial calculators: the Texas Instruments (TI) BA-35 SOLAR, the Texas Instruments (TI) BA II PLUS, the Hewlett-Packard (HP) 12C, the Hewlett-Packard (HP) 17BII, and the HewlettPackard (HP) 19BII. The sections for each calculator present step-by-step instructions for using general and financial functions offered by each calculator. The calculations for each type of...
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...when reading questions that include multiple sets of brackets (e.g., assignment question 6). These can be confusing, so work through them carefully. 5. To record your solutions, put your answer in Column F, on the same row as the assignment question. See example for Question 1: (1+0.25)8). 6. Don’t be alarmed by the number of questions! You will likely be able to complete the work more quickly than you think. 7. There are 33 questions in Part I. Each question is worth 1% of the total marks for Assignment 1. How Do I Read the Table? Start from the far left-hand column and read across each row. We’ll refer to Example #10 in our descriptions below. · Column A: number of the task (e.g., 10) · Column B: title of the task (e.g., Calculating basic loan interest). Below this title is the description and data for the practice example. (In Example 10; N = 20...
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...house? b. What annual rate of return did Bill realize on his house? a. to get anual rate of return for Adrian: n = 4 r = ? PV = -$208,000 PMT = 0 FV = $256,000 r = ? PV = r = 5.33% b. to get anual rate of return for Bill: n = 4 r = ? PV = -$195,000 PMT = 0 FV = $168,000 r = ? PV = r = -3.66% A11. (Calculating the PV and FV of an annuity) Assume an ordinary annuity of $500 at the end of each of the next three years. a. What is the present value discounted at 10%? b. What is the future value at the end of year 3 if cash flows can be invested at 10%? a. to get present value: n = 3 r = ? PV = ? r = 10% PMT = $500.00 FV = 0 PV = PV = $1,243.43 b. to get future value: n = 3 r = ? PV = 0 r = 10% PMT = $500.00 FV = ? FV= FV = $1,655 Chapter 5 A1. (Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond’s coupon rate is 7.4%. What is the fair value of this bond? Calculating PV factor i= required return = 9% = 0.09 n= 10 years Coupon Rate to get value Annuity Cash Flow of $1000 to get present value Cash flow= $1000 * 7.4/100 = $74 Cash flow=...
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...Chapter 5 A1. (Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond’s coupon rate is 7.4%. What is the fair value of this bond? Calculating PV factor: i= required return = 9% = 0.09 n= 10 years Using Cash Flow of $1000 to calculate present value, Cash flow= $1000 PV factor = 1/(1+i)^n = 0.42241 PV = $1000*0.42241= 422.41 Using Coupon Rate to calculate present value of Annuity Cash flow= $1000 * 7.4/100 = $74 PV factor = (1/i)*(1- 1/(1+i)^n) = 6.4176 So, PV = $74*6.4176 = 474.90| So the fair value of bond = 474.90+422.41 = $897.31 A10. (Dividend discount model) Assume RHM is expected to pay a total cash dividend of $5.60 next year and its dividends are expected to grow at a rate of 6% per year forever. Assuming annual dividend payments, what is the current market value of a share of RHM stock if the required return on RHM common stock is 10%? Current market value = D1/(Required return – growth rate) = 5.60/(10%-6%) = $140 A12. (Required return for a preferred stock) James River $3.38 preferred is selling for $45.25. The preferred dividends is now growing. What is the required return on James River preferred stock? Required Return = Dividend/Market Price Dividend = $3.38 Market Price = $45.25 Required Return = $3.38 / $45.25 Required Return = 7.47% A14...
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...Present and Future Values, and Expected Returns BUS 401 Principles of Finance Instructor: February 29, 2016 Present and Future Values, and Expected Returns Critically reflect on the importance of present and future values. This week started rough for me but while reviewing the material for this week’s lesson I learned the importance of the present value (PV) and future value (FV). PV and FV are related in a sense because they both represent the financial worth of the money at a given time. For starters, present value is the current financial worth of money at that moment. In contrast used to increase a likely return profit. The future value is the financial worth of value of the items at a particular time. In contrast used to measure the expected amounts of money that a given quantity of the cash that will be worth at the available time. Furthermore, FV assists in investment decisions when determining the amount of money by calculating the financial value of the money. The time value of the money is an indication that the money available now is worth more than it would be on the forthcoming date due to the potential money making capacity. What factors must be considered when calculating present and future values? Calculating PV, the factor must include discounting because discounting reveals the time value of the investment and any liabilities occurs along the way with the investment. The use of present value in the calculation of money...
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...asset=550000÷95%=578947.37 The rate of the sales’growth==5.26% 17、Fixed Assets and Capacity Usage “Assume the company maintains its current operating capacity.” Fixed asset turnover===1.31579 New fixed assets=630000÷1.31579-440000=38800 21、Sustainable Growth ROE==××= Profit margin×Total asset turnover× (Do Pont Identity)=4.8%×1.25×=17.14% b(Plowback ratio)=1-Payout ratio=70% Sustainable Growth===13.64% CHAPTER 5 9 、Calculating the Number of Periods FV=PV×(1+r)t→170000=40000×(1+5.3%)t T=28.02也即29年。 16、Calculating Rates of Return(TMCC) TMCC(PV:24099；FV:100000；NPER:30；public on March 28,2008) a、r=4.86%；b、r=3.93%(NPER:12,FV:38260) c、r=5.48%(NPER:18,FV:100000,PV:38260) 17、Calculating Present Values FV=PV×(1+r)t→170000=PV×(1+12%)9 →PV=61303.7 CHAPTER 6 32、Calculating Annuities FV=C×﹛[﹙1+r﹚t-1]/r﹜ →FVS=700×﹛[﹙1+﹚30×12-1]/﹜(11%是年利率，700是每月投入)=1963163.82 FVD=300×﹛[﹙1+﹚30×12-1]/﹜=301354.51 PV= FVS+ FVD=2264518.33 PV=C×﹛1-[1/﹙1+r﹚t]/r﹜→C=PV÷﹛1-[1/﹙1+r﹚t]/r﹜ →C=2264518.33÷﹛1-[1/﹙1+﹚25×12]/﹜=19003.76(18862.29期初年金) 43、Present and Future Values PV= →6550=+++ X=1833 45、EAR versus APR (a...
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...Chapter 6 TIME VALUE OF MONEY Alex Tajirian Time Value of Money 6-2 1. OBJECTIVE # Derive a valuation (pricing) equation based on cash flow (amount, timing, & risk). Time Value of Money analysis involves: ! ! What is $1 worth 10 years from today (Future Value)? What is $1 to be received in 10 years worth today (Present Value)? # # Applications ! ! ! ! ! ! ! Loan amortization stated vs. effective interest charged rebate vs. low financing pricing of bonds (Chapter 7) pricing of stocks/firms (Chapter 7) What is the value of a particular division within a firm? How much value does a new project contribute to a firm? # In this chapter we assume the following are given: ! cash flow: amount, timing, and risk as reflected in k © morevalue.com, 1997 Alex Tajirian Time Value of Money 6-3 2. TYPES OF VALUATION L Based on investors' preferences and attitudes towards consumption and risk. ! Demand & Supply analysis L Based on "cash flow (CF)", ! CF: stream of promised future income today = time of analysis | period s CF $100 200 -100 ... 0 | 1 | | 2 time 3 where periods can be hours, days, weeks, etc Note. 7 Positive CF means receiving $ (inflow), negative CF means paying $ (outflow) Thus, given the CFs and how good the promise is, its risk, everyone would agree on the value (price) of the income stream. © morevalue.com, 1997 Alex Tajirian Time Value of Money 6-4 3. FUTURE VALUE (FV) L Put $100 (CF)...
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...CHAPTER 4 Discounted Cash Flow Valuation What do baseball players Jason Varitek, Mark Teixeira, and C. C. Sabathia have in common? All three athletes signed big contracts in late 2008 or early 2009. The contract values were reported as $10 million, $180 million, and $161.5 million, respectively. But reported figures like these are often misleading. For example, in February 2009, Jason Varitek signed with the Boston Red Sox. His contract called for salaries of $5 million, and a club option of $5 million for 2010, for a total of $10 million. Not bad, especially for someone who makes a living using the “tools of ignorance” (jock jargon for a catcher’s equipment). A closer look at the numbers shows that Jason, Mark, and C. C. did pretty well, but nothing like the quoted figures. Using Mark’s contract as an example, although the value was reported to be $180 million, it was actually payable over several years. It consisted of a $5 million signing bonus plus $175 million in future salary and bonuses. The $175 million was to be distributed as $20 million per year in 2009 and 2010 and $22.5 million per year for years 2011 through 2016. Because the payments were spread out over time, we must consider the time value of money, which means his contract was worth less than reported. How much did he really get? This chapter gives you the “tools of knowledge” to answer this question. 4.1 Valuation: The One-Period Case Keith Vaughn is trying to sell a piece of raw land in Alaska. Yesterday...
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...as they apply to bonds: a. Face value b. Maturity date c. Coupon interest (including coupon interest rate) d. Current yield e. Yield to maturity (YTM) f. Yield to call (YTC) g. Call premium 2. What are “Zero-coupon” bonds? 3. Suppose you see the following bond price quote in the newspaper: McDonalds 5.7% 2039……..122.733 What can you tell about this bond from reading the price quote? 4. (calculating the present value of a bond) If a corporate bond with a face value of $1,000 has 24 years to go until it matures, has a coupon interest rate of 5.7% and a yield to maturity (YTM) of 4.201%, what should be its price in the bond market (ie, PV)? 5. (calculating the current yield of a bond) If a corporate bond with a face value of $1,000 has 24 years to go until it matures, has a coupon interest rate of 5.7% and a market price of $1,223.92, what is its current yield? 6. (calculating the YTM of a bond) If a corporate bond with a face value of $1,000 has 24 years to go until it matures, has a coupon interest rate of 5.7% and a market price of $1,223.92, what is its yield to maturity (YTM)? 7. (calculating the YTC of a bond) Assume a callable corporate bond with a face value of $1,000, a coupon interest rate of 5.7%, a market price of $1,223.92, and a call premium of 6%. Assume also that the bond has 24 years to go until it matures, but it is callable after 14 years. What is the bond’s yield to call (YTC)? 8. (calculating the present value of a bond with semi-annual coupon...
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...Week 3 Assignment 1 ------------------------------------------------- 1. Calculating the Number of Periods At 8 percent interest, how long does it take to double your money? To quadruple it? FV = PV (FVF) 8%, t = ? $2 = $1 (FVF) 8%, t = ? $2/ 1 = 2.0; so for FVF at 8 %, “t” is approximately 9 years. 2. Perpetuities An investor purchasing a British consul is entitled to receive annual payments from the British government forever. What is the price of a consul that pays $160 annually if the next payment occurs one year from today? The market interest rate is 4.5 percent. PV = C / r PV = $160 / 0.045 PV = $3,555.56 3. Present Value and Multiple Cash Flows Investment X offers to pay you $6,000 per year for nine years, whereas Investment Y offers to pay you $8,500 per year for five years. Which of these cash flow streams has the higher present value if the discount rate is 9 percent? If the discount rate is 21 percent? PVA = C ({1 – [1/(1 + r)]^t} / r X @ 9%: PVA $6,000 {[1 – (1 / 1.09)^9] / .09} = $35,974.48 Y @ 9%: PVA $8,500 {[1 – (1/1.09)^5] / .09} = $33,062.04 X @ 21%: PVA $6,000 {[1 – (1 / 1.21)^9] / .21} = $23,432.61 Y @ 21%: PVA $8,500 {[1 – (1/1.21)^5] / .21} = $24,870.87 4. Calculating EAR First National Bank charges 15.1 percent compounded monthly on its business loans. First United Bank charges 15.5 percent compounded semiannually. As a potential borrower, which bank would you go to for a new loan? EAR = [1 + (APR / m)]^m – 1 ...
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...2014 WACC 0.20 Period PV (51.88) (226) 1,430 Total PV 78.61 60% Equity 47.16 NPV 27.16 Effective Return ($20) $27 36% → Vs. → ($40) $27 -32% When calculating the effective return using the book value method I began with $3.5 (given) in 2004 and calculated each year forward. By 2014 the equity book value grew to $671.5. I took 60% of the present value of $671.5 and calculated the effective return using an initial investment of $40 million. Under these assumptions, I found that the effective return was 63%. This return immediately struck me as being high. Please refer to Exhibit 1 for these calculations. Similar results were found when calculating the effective return using the market value method. Using terminal earnings of $203 and a comparable P/E ratio of 15, I found Arcadian’s equity value to be $3039. I then took 60% of the present value of that amount and calculated the effective return using an initial investment of $40 million. Under these assumptions, the effective return was found to be 514%. This return was even more astronomical then that of the book value method. Due to the fact that the market value method is using a comparative P/E ratio when Arcadian currently has negative net incomes, I do not find the market value method to be a substantial indicator of the firm’s value. Recommendation The growth rate applied...
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...as they apply to bonds: a. Face value b. Maturity date c. Coupon interest (including coupon interest rate) d. Current yield e. Yield to maturity (YTM) f. Yield to call (YTC) g. Call premium 2. What are “Zero-coupon” bonds? 3. Suppose you see the following bond price quote in the newspaper: McDonalds 5.7% 2039……..122.733 What can you tell about this bond from reading the price quote? 4. (calculating the present value of a bond) If a corporate bond with a face value of $1,000 has 24 years to go until it matures, has a coupon interest rate of 5.7% and a yield to maturity (YTM) of 4.201%, what should be its price in the bond market (ie, PV)? 5. (calculating the current yield of a bond) If a corporate bond with a face value of $1,000 has 24 years to go until it matures, has a coupon interest rate of 5.7% and a market price of $1,223.92, what is its current yield? 6. (calculating the YTM of a bond) If a corporate bond with a face value of $1,000 has 24 years to go until it matures, has a coupon interest rate of 5.7% and a market price of $1,223.92, what is its yield to maturity (YTM)? 7. (calculating the YTC of a bond) Assume a callable corporate bond with a face value of $1,000, a coupon interest rate of 5.7%, a market price of $1,223.92, and a call premium of 6%. Assume also that the bond has 24 years to go until it matures, but it is callable after 14 years. What is the bond’s yield to call (YTC)? 8. (calculating the present value of a bond with semi-annual coupon...
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...http://whatheheckaboom.wordpress.com/2011/12/06/accounting-for-finance-leases-and-operating-leases/ Applicable Standard * IAS 17: Leases Classification of Leases * Finance leases (substantially all of the risks and rewards of ownership are transferred to the lessee) * Operating leases (otherwise) * Note that because Land has indefinite useful life, it is typically classified as an operating lease Calculating Total Finance Charge over Lease Term * Total minimum lease payments (cash) * - Cost of the asset (i.e. lower of fair value and PV of minimum lease payments) * = Total finance charge Accounting for Operating Leases Accounting for Operating Leases as Lessee * P&L * Lease expense recognised in P&L. * Note that lease expense is an accrual item, not a cash item. It is calculated as the total lease payments (cash, incorporating any discounts or deposits) under the contract, spread evenly over the lease term. * Lease payment typically covers both interest and principal payments (just like a mortgage) * Balance sheet * Recognise an asset item (for pre-payments) or liability item (accrual for lease) due to the timing differences between cash payments and lease expense. Accounting in Operating Leases as Lessor * Continue to hold the asset in its books and depreciate as per normal. * Recognise the rental as income, accrual item on the income statement. * Differences in timing between cash and...
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...|_________________|_______________|________________|_______________| Year 53,250 63,900 76,680 92,016 101,218 Year one FV³ = PV x (1 + g) ³ = 53,250 x 1.2 = 63,900 Year two FV³ = PV x (1 + g) ³ = 63,900 x 1.2 = 76,680 Year three FV³ = PV x (1 + g) ³ = 76,680 x 1.2 = 92,016 Year four FV³ = PV x (1 + g) ³ o ( 1+g)4 = 92,016 x 1.1 = 101,218 Multiple compounding periods a- The present value of $3,500 in five years is $5,360.53 dollar. FVn = PV x (1 + i) n = $3,500 x (1 + 0.089)5 = $3,500 x 1.5315788 = $5,360.53 b- FVn = PV x (1+I / m) m x n = $3,500 x (1 + 0.066 / 4) 4 x 8 = $3,500 x (1 + 0.0165) 32 = $3,500 x 1.688248044 = $5,908.87 c- FV daily = PV x (1 + I/m) m x n = $3,500 x (1 + 0.043 / 365) 365 x 4 = $3,500 x (1 + 0.0001178) 1460 = $3,500 x (1.0001178)1460 = $3,500 x 1460.1719 = $5,110.60 d- FVq = PV x eixn = $3,500 x e 0.057 x 3 = $3,500 x e 0.171 = $3,500 x 1.18649 = $4,152.70 Future value with multiple cash flows The future value of the investment of Trigen Corporation cash flows for the period of...
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