Ch. 10 Long-Term Financing

# Ch. 10 Long-Term Financing - Long-Term Debt Financing...

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12/26/10 Long-Term Liabilities Debts and other obligations that will not be paid in cash, or satisfied with other assets or services, within one year Examples: Notes Payable Mortgage Payable Lease Obligations
12/26/10 Present Value Concept States that the value of a dollar today is greater than the value dollar in the future \$90.91 INVESTED TODAY at 10% INTEREST \$100 IN ONE YEAR By investing only \$90.91 today, you can get \$100 in one year at 10% interest.

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12/26/10 Computing Present Values There are two present value tables: Table I (Single Payment) Table II (Annuity) Determine the time period in question and the interest rate Use those figures to find the appropriate number in the table http://www.annuities-financial-planning.com/images/present-value-annuity-table.jpg
12/26/10 Compound Interest Interest is calculated on the principal amount Lease Liability, Mortgage Payable Interest rates are typically given in their annual form To calculate interest correctly, you must adjust the interest rate to the number of compounding periods per year Annual: 1 Semi-Annual: 2

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12/26/10 Compounding Interest Interest rate per compounding period ( i ) = Yearly Interest Rate Compounding Periods/Year Ex: An investment for 4 years at 12% interest compounded: Annually = 12%/1 = 12% per period Semi-Annually = 12%/2 = 6% per period Quarterly = 12%/4 = 3% per period
12/26/10 Compounding Interest

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Ch. 10 Long-Term Financing - Long-Term Debt Financing...

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