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_ max—4% Sales
Assets Asset Turnover = Cost of Goods Sold Inventory Turnover =
Average Inventory Annual Credit Satles Accounts Receivable Turnover = ————————7——
Average Accounts Rece1vable Average Accounts Receivable Average Collection Period = I ,
Dally Credit Sales Sales Less Cost of Goods Sold Gross Proﬁt Margin =
Sales Net Profit M argin= W Sales Net Incom
Return on Investments = c Total Investm ent . CurrentAssets
Crurrent Ratio: C urrent Liabilities . _ C _ .
7 Ac1d Test Ram: W C urrent Liabilities Total Liabilities
Total Assets D ebt Ratio= Net Operating Income Tim es Interest Earned: ——~——————————
Annual Interest Expenses to ROI Ion
jIn pan lectur Introduct ; ImprOVIng 1 roken uy‘b sen qu re f ROI r. ,  BB. Equity or ROE
Yo u' .maké ' “3' ‘ X .,$a:es _ X.  ~ ' Assets Proﬁt—Margin 'x Turnover x ééguity
' ~ 7 r Wﬁiplier 4. RiskReturn Relationships '— What determines how large a the ROI for a '
PartiQUIar company should be? ' '  Barriers to entry come from: 3% $5? é? I 0' o Uniqueness: . 0 00.31 Admanta gesi ng a 2. Ta : . . . _ : 7 wake d my fnat is "J i [Lil{0" r11ié‘s¥‘:id3z—.L t; if ‘i n f 'I?‘ 3’
ea. ' G ( 9':
. : : . ' 3 a 1  ﬁéfﬁ'eﬁii' {110' Pierémi ‘ ' 1. $300.15 be feceived"10"yeai5' mm nawdisccils'
bagk presentat '10 pgrcent V. Campound Sum and Presén’c value—gnﬁuiﬁes _;_5 _§_:Deﬁﬁiﬁon:_ An annuity a' series of ﬁxed payrnenE I ._ ' ‘ ' 5;;e,As$§mpﬁ9n152Ca$Eﬂcﬁ§ 0‘53“? Vll. Non Aﬁnual Compoundiﬁg' _' Weknéw PM = PV(1 Nonannual comp ounding tenus: APR or Annual Percentage Rate (this is also the quoted or nominal rate): The stated
nominal annual rate before compounding. APY or EAR — Annual Percentage Yield or Equivalent Annual Rate: The actual annual
interest rate earned or paid. '  Taldng'a Annual Percentage rate_(APR) —— this is the nominal or quoted rate, it's generally 3 the number that’s given «— to an Annual Percentage Yield (also sometimes called an EAR
or equivalent annual rate). For example, let's, take an APR of 785 compounded x I
quarterly; 1 ' ‘ o ' Press ICONV (you’ve got to hit the 2m button then the “2" button) a  NOM = 7.85, asking for the quoted annual rate, input this rate as a % and press
enter. ‘ ' I I Press the UP arrow (on the top row), and C/Y = 4 appears (or type it in if _ something else appears). This is asking for In, the number of compounding
periods per year. ENTER that number. ' ‘ ' V o Press UP arrow, EFF= # appears, press CPT to ﬁnd the APY. EFF = 8.08% (that
number the APYJ.  ‘ ' _ ‘
r ' il‘Whichisthebet‘ter'lPaﬁ": c r 7 _ 6 _ 8% compounded annually? or
I 7.85% compounded quarterly?  We can’t compare these nominal (quoted) inteest rates, because they don’t include the same number of compounding periods per year. We need to calculate the
APY ' r APY= [1 + (quoted ratelmﬂm— 1
Find the APY for the quarterly loan: APY.=[1+(.o7s.5/4)]4—1 = .OSOEor8.08%  1. You're going to buy a house for $500,000 and you
can get a 9%, 15year mortgage with monthly
payments, but the maximum monthly payment you can afford is $3,000, how much of a down payment
do you need? 2. You've borroWed $200,000 to buy a house with a 15
year, 9% mortgage with monthly payments. If every
month you pay an additional $500 toward your
mortgage, how long will it take to payoff your
mortgage? flow?“
3. You are to receive a 10 year 300,000 annuity (that means ten cash flows of $100,000 each) with the
first cash flow occurring at the end of year 5. Given
a 10 percent discount rate, what is the present value
of this annuity? 4. You are to receive a $100,000 perpetuity with the
first payment taking place at the end of year 5. If
10 percent is the appropriate discount rate, what is
the perpetuity's present value? Organizational form
& Taxes Financial Markets
& Instruments
(Core investment
alternatives) Ratios m ROI Time Value of Money Test 1
Fall 2007 Verbal
1 1
(a deﬁnition) 0 Math 12 ...
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 Fall '07
 AJKeown
 Finance, Balance Sheet, Interest Rates, Time Value Of Money, Annual Percentage Rate, Annual rate

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