Chapter 4 Time Value of Money Solutions to Problems P4-1. LG 1: Using a Time Line Basic (a), (b), and (c) Compounding Future Value –$25,000 $3,000 $6,000 $6,000 $10,000 $8,000 $7,000 |—————|—————|——————|——————|—————|——————|—> 0 1 2 3 4 5 6 End of Year Present Value Discounting (d) Financial managers rely more on present than future value because they typically make decisions before the start of a project, at time zero, as does the present value calculation. 74 Part 2
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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 financial operation have been explained using sample problems. The display on the calculator’s screen at the completion of each step has also been included to allow you to confirm your calculations as you proceed. V Texas Instruments (TI) BA-35 Solar The TI BA-35 SOLAR can operate in three different
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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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financial market having the same systematic risk. – required return: is from an investor's point of view – cost of capital: is the same return from the firm's point of view – appropriate discount rate: is the same return yet again to be used in a present value calculation WACC - 2 3 B. Required (rate of) Return • COMBINING BOTH INVESTORS’ AND FIRMS’ PERSPECTIVES: • A FIRMS COST OF CAPITAL OR DISCOUNT RATE IS GIVEN BY INVESTORS REQUIRED RATE OF RETURN. • RETURN TO INVESTMENT DECISION!!
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Financial Management Lecture 1 Corporate Finance/Financial Decisions: Three important steps. * The Investment Decision: Expand, selling and so on. Decisions to spend or earn money. Capital budgeting. Capital budgeting is the planning and managing of a firms investment in non-current assets. The main thing is the cash flow. Evaluating; * Size of future cash flows * Timing of future cash flows * Risk to future cash flows. Cash flow timing is when a dollar today
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definition of the firm, the GIPS Standards require all of the following except: A. firms must be defined as an investment firm. B. a firm’s organization alters historical composite results. C. total firm assets must be the aggregate of the market value of all discretionary and nondiscretionary assets under management. 4. Under which measurement scale is data categorized, but not ranked? A. An ordinal scale. B. A nominal scale. C. An interval scale. 5. The joint probability of events A and
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filter rules seem yield above-average profits with small filters, but only before taking into account the substantial transactions costs involved * Trading rule results have been mixed, and most have not been able to beat a buy-and-hold policy Problems with tests: *Cannot be definitive since trading rules can be complex and there are too many to test them all *Testing constraints- it use only publicly available data, it should include all transactions costs and it should adjust the results for
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Furniture Store Analysis Guillermo is properly positioned and ready to compete. The technology-infused manufacturing alternative gives him the ability to maintain a competitive edge. After examining the business with a cash flow and the problems that confronted it, a five member management team determined the best course of action going forward. Some businesses are proactive while others are reactive. The financial management team took a reactive approach because Guillermo previously was
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decided to go back for my MBA at Gannon. I was 34 years only when I started this program and will be 36 when I hopefully finish. Ben is 28 years old currently and he has about 38 years more years to work as the problem states. Even if we take in to account the cost of the education and the time he still bound to make more money from the degree. If he continues to wait he will forfeit those years where he can get a higher salary. Therefore the total lifetime salary amount is lowered. Another fact
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Hw problem in chapter 4: Bond with 10% coupon = 100 Par @ 1000 3 years to maturity Required rate of return is 14% PV = coupon x (PVIFA kd, n) + 1000 (PVIF kd, n) = 100*2.322 + 1000 * 0.675 = 232.2 + 675 = 907.2 Or (discounted flows) 1 100 x 0.877 = 87.70 2 100 x 0.769 = 76.9 3 1100 x 0.675 = 742.5 907.1 Semi-annual bond 2x3years = 6 periods Kd = 14/2 = 7% Coupon = 100/2 = 50 Practice bonds Time value of money problems Practice problems when
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