ORIE 350 Lecture 10

# ORIE 350 Lecture 10 - ORIE 350 Lecture 10 Asset Turnover...

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ORIE 350 Lecture 10 Asset Turnover Ratio = Net SalesAverage Book value of a long term asset Book value = Historical cost – accumulated depreciation Equipment(net)= historical cost- accumulated depreciation BONDS To raise cash, large corporations sells bonds It is a form of long term debt To pay it back, the issuing corporation makes periodic interest payments and pays back the face value at the end of the bond term From the corporations’ Point of View 1. Cash received 2. Interest payment every 6 months 3. Combination of ordinary annuity and single payment PV= A(1-(1+i) -n )/ i) + FV/(1+i) n -Where n is the number of 6-month periods -FV is the face value of the bond -i is the 6-month interest rate Yield = 2i A = (face interest rate/2) x [face value] Face value= amount printed on bond, amount paid back at maturity Face interest rate= amount printed on bond Note: price paid not equal to face value Face interest rate not equal to yield(yield = 2i) Must calculate i from the bond equation And we can either fix 1. Price paid, given yield 2. Yield, given price paid

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## This note was uploaded on 03/30/2008 for the course ORIE 350 taught by Professor Callister during the Spring '08 term at Cornell University (Engineering School).

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ORIE 350 Lecture 10 - ORIE 350 Lecture 10 Asset Turnover...

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