3 - Managerial Finance Prof. Dr. Christian Kalhoefer...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Prof. Dr. C. Kalhoefer / Managerial Finance Spring 2011 / 3 - 1 Managerial Finance Spring term 2011 Lecture notes 3 Time Value of Money Prof. Dr. Christian Kalhoefer Department of Finance
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Prof. Dr. C. Kalhoefer / Managerial Finance Spring 2011 / 3 - 2 Course Agenda “Managerial Finance” A. Introduction to Managerial Finance 1. The Role and Environment of Managerial Finance 2. Financial Statements and Analysis B. Important Financial Concepts 1. Time Value of Money 2. Risk and Return 3. Interest Rates and Bond Valuation C. Long-Term Financial Decisions 1. The Cost of Capital 2. Leverage and Capital Structure 3. Dividend Policy
Background image of page 2
Prof. Dr. C. Kalhoefer / Managerial Finance Spring 2011 / 3 - 3 Time Value in Finance The timing of cash outflows and inflows has important economic consequences Money a firm has in its possession today is more valuable than money in the future, because it can be invested and earn positive returns Two views of time value are usually considered Future Value , and Present Value
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Prof. Dr. C. Kalhoefer / Managerial Finance Spring 2011 / 3 - 4 Future Value and Present Value Future value techniques typically measure cash flows at the end of a project’s life Present value techniques measure cash flows at the start of a project’s life Both will result in the same decision Future value technique uses compounding to find the future value of each cash flow and then sums these values to find the investment’s future value Present value technique uses discounting to find the present value of each cash flow and then sums these values to find the investment’s present value
Background image of page 4
Prof. Dr. C. Kalhoefer / Managerial Finance Spring 2011 / 3 - 5 Compounding and Discounting in Principle 0 1 2 3 4 5 -10,000 3,000 5,000 4,000 3,000 2,000 Future Value Present Value
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Prof. Dr. C. Kalhoefer / Managerial Finance Spring 2011 / 3 - 6 Common Assumptions Time line Depicts the cash flows associated with a given project Starts today (time zero) Ends at end of project (time n) Is separated into periods , usually one year Cash flows Can be positive or negative Usually are considered to occur at the end of the period
Background image of page 6
Prof. Dr. C. Kalhoefer / Managerial Finance Spring 2011 / 3 - 7 Basic Patterns of Cash Flows Single amount A lump-sum amount either currently held or expected at some future day Examples : $ 1,000 today, $ 650 to be received at the end of 10 years Annuity A level periodic stream of (annual) cash flow Example : paying or receiving $ 800 at the end of each of the next seven years Mixed stream A stream of cash flows that is not an annuity Example : cash flow of $ -50, 100, 80, -60 over the next four years
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Prof. Dr. C. Kalhoefer / Managerial Finance Spring 2011 / 3 - 8 Future Value of a Single Amount The value given at a future date of a present amount of money Found by applying compound interest over specified period of time
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/08/2011 for the course MGMT 401 taught by Professor Mohamed during the Spring '11 term at Manor.

Page1 / 44

3 - Managerial Finance Prof. Dr. Christian Kalhoefer...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online