Week 5 Assignment ACC206 1. Basic present value calculations Future Value $12,000.00 Years: 5 Rate: 12% Present Value = $6,809 Annual Cash Flow $16,000.00 Duration 12 Rate 14% Present Value $90,565 Rate 10% Year Cash Flows Present Value 0 $ - $ - 1 $15,000.00 $13,636.36 2 $ - $ - 3 $10,000.00 $7,513.15 Present value $21,150
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capital Discuss how likely technological advances over the next 20 years will change the way businesses manage working capital. Provide specific examples to support your response. Explain the concept of time value of money and how this can be applied in your life. Time Value of Money (TVM) is an important concept in financial management and can be used to make comparison when it comes to investment alternatives and to solve the problems involving mortgages, loans, leases, savings and annuities
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method: the time period in which we are interested is the length of time until the sum of the discounted cash flows is equal to the initial investment. Efficient frontier: set of project portfolio options that offers either a maximum return for every given level of risk or the minimum risk for every level of return. Internal rate of return (IRR): an alternative method for evaluating the expected outlays and income associated with a new project investment opportunity. Lead time: effective
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Chapter 6 Time Value of Money LEARNING OBJECTIVES After reading this chapter, students should be able to: • Convert time value of money (TVM) problems from words to time lines. • Explain the relationship between compounding and discounting, between future and present value. • Calculate the future value of some beginning amount, and find the present value of a single payment to be received in the future. • Solve for time or interest rate, given the other three
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Time value of money problems 1) An annuity makes ten annual payments of $1000 each, starting 3 years from now. What is the present value if the discount rate is 10%? 2) If the discount rate is 8% per year, what is the present value of $1500 received every third year forever (the first payment occurs three years from now)? 3) A perpetuity makes payments of $500 every second year, with the first payment coming one year from today. If the discount rate is 5%, what is the present value of the perpetuity
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CT1 – P C – 09 Combined Materials Pack ActEd Study Materials: 2009 Examinations Subject CT1 Contents Study Guide for the 2009 exams Course Notes Question and Answer Bank Series X Assignments* *Note: The Series X Assignment Solutions should also be supplied with this pack unless you chose not to receive them with your study material. If you think that any pages are missing from this pack, please contact ActEd’s admin team by email at ActEd@bpp.com or by phone on 01235 550005. How to
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FINANCE A QUALITY E-LEARNING PROGRAM BY WWW.LEARNWITHFLIP.COM Understanding Money Money is a standardized unit of exchange. The physical form of money is currency. Different countries have different currencies. Interest is the amount earned or paid on money which is lent. Compound interest is the ‘interest earned on interest’. Compound Interest (C.I)= [P*(1+r/100)^t – P] P=Principal amount r=Rate of interest t=Time period in years Interest may be compounded annually, semi-annually, quarterly,
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A is the number of years when cumulative cash flow is still negative. B is the final negative figure and C is the figure that makes cumulative cash flow become positive. Drawbacks of payback period: 1. It makes no allowance for the time value of money, risk, financing or other important consideration, such as opportunity cost. 2. Receipts beyond the payback period are ignored (ignore cash flow after the payback period) 3. Arbitrary selection of the cut-off point Accounting Rate
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given investment period McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. Example 5.1 Suppose you are considering investing some of your money, now all invested in a bank account, in a stock market index fund. The price of a share in the fund is currently $100, and your time horizon is one year. You expect the cash dividend during the year to be $4, so your expected dividend yield is 4%. Your HPR will depend on the price one year from now. Suppose your
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Solutions to Chapter 4 The Time Value of Money 1. a. b. c. d. $100/(1.08)10 = $46.32 $100/(1.08)20 = $21.45 $100/(1.04)10 = $67.56 $100/(1.04)20 = $45.64 $100 × (1.08)10 = $215.89 $100 × (1.08)20 = $466.10 $100 × (1.04)10 = $148.02 $100 × (1.04)20 = $219.11 2. a. b. c. d. 3. $100 × (1.04)113 = $8,409.45 $100 × (1.08)113 = $598,252.29 4. With simple interest, you earn 4% of $1,000 or $40 each year. There is no interest on interest. After 10 years, you earn total interest of $400
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