CORPORATE FINANCE 1) Valuation formulae Let V be the present value of an asset or security that pays cash flows in the future, where the last cash flow is to be received at time T (note that, if cash flows are to be received forever, then T = ∞). Let CFt be the cash flow to be received at time t, and let rt be the appropriate discount rate for the period from now to time t. Then, [pic] Special cases: i) Time periods between cash flow payments are of equal length ii) The
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part of a time line with an initial cash inflow and a future cash outflow. Which cash flows should be negative and which positive" (Cornett, Adair, and Nofsinger, 2014, p. 91)? Time lines “shows the magnitude of cash flows at different points in time, such as monthly, quarterly, semiannually, or yearly” (Cornett, M. M., Adair, T. A., & Nofsinger J. (2014). Inflow cash is known as positive. Outflow cash (bills, deposits) are known as negative cash flow. 2. "How are the present value and future
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years in the savings account with 2% interest on $5000 compounded annually I would have $5412.16 Compounded semiannually $5414.28 You have $10,000 in credit card debt, at a 14% interest rate. When is it beneficial to pay off the debt vs. putting money in a savings account? Explain the pros and cons of either option. By using the bankrate.com site calculater I was able to find that if I had $10,000 in credit card debt with a 14% interest rate it would take me over 27 years to pay off this debt
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will pay the bank over the life of the loan? $123,945.04 4. What is the effective rate of interest on a CD that has a nominal rate of 7.25 percent with interest compounded monthly? EAR = (1+.0725/12)^12 – 1 = 7.5% 5. What is the future value of $4,950 placed in a saving account for six years if the account pays 3%, compounded quarterly? PV = 4,950 N = 6 x 4 = 24 I =3/4 = .75% Pmt = - FV = $5,922.24 6. Your firm, Vandelay Industries, has just leased a $32,000 BMW for you
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of the menu slots to activate the cursor and then clicking on the cell where the item is given. Then, hit the tab key to move down to the next menu slot to continue filling out the dialog box. Experiment by changing the input values to see how quickly the output values change. b. Now create a table that shows the FV at 0%, 5%, and 20% for 0, 1, 2, 3, 4, and 5 years. Then create a graph with years on the horizontal axis and FV on the vertical axis to display your results. Begin by typing in
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"Time Value of Money and Annuity" Please respond to the following: • From the e-Activity, create a personal scenario that exemplifies the time value of money that includes the opportunity cost involved. According to Investopedia, the time value of money is the concept that money available today is worth more than the same amount of money in the future based on its earning potential up until the time the future amount is received. It is the potential of money to grow in value over time. The basic
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Time Value of Money Terminology Terminology (AKA jargon) can be a major impediment to understanding the concepts of finance. Fortunately, the vocabulary of time value of money concepts is pretty straightforward. Here are the basic definitions that you will need to understand to get started (calculator key abbreviations are in parentheses where appropriate): Banker's Year A banker's year is 12 months, each of which contains 30 days. Therefore, there are 360 (not 365) days in a banker's year. This
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Time Value Money How would you explain the Time Value Money in business and what considerations are made when calculating TVM? Provide a sample TVM and solution. I have read the text in our books and also looked up TVM on the Internet. I feel like all this new information is foreign to me. I am trying to find as many resources as possible to re-explain the concepts learned in our text to help me gain a better understanding of each new concept being presented. I found an article on Investopedia
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Examine the concept of time value of money in relation to corporate managers. Propose two (2) methods in which time value of money can help corporate managers in general. The time valuation of money is the idea that money available now could be worth more than the same amount in the future, because that current money has the possibility of earning money in the future. Think if the expression, “It takes money to make money!” If you are guaranteed to have $100.00 now or $100.00 in 3 years, you would
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Review the Time Value of Money simulation. Which option did you initially choose, cash or annuity? How were your winnings affected by the cash option? How did this compare to the annuity option? If you won the lottery today, which option would you choose and why? Under time value of money simulation, the option between cash or annuity is evaluated on the criteria of short term benefits with strategic (long-term) benefits.Cash option is opted when somebody is looking for quick returns & results
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