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Unformatted text preview: Business Management 201 Day 8 Chapter 5: Part 2—Time Value of Money September 26, 2011 Day 8 Agenda 1) TVM FaceOff on Wednesday—Bring Calculators 2) POW Quiz #4: Manning Case (Counts Double!) Due Friday at 11:59 PM 3) Next TA Sessions: TA Open Lab Session—Tuesday 2:00 PM3:00 PM in 251 TNRB TA POW Review Session—Tuesday 7:00 PM 8:00 PM in 3108 JKB 1) Chapter 5—Part 2: Time Value of Money Chapter 5: Chapter 5: The Time Value of Money The Time Value of Money Why is TVM Important? 1) Most longterm project have cash flows that occur at different points in time . 2) Given that the passage of time impacts the value of cash flows , the value of a project is dependent on how we assess these differences. 3) The purpose of this chapter is to develop the tools necessary to evaluate cash flows over time in order to make optimal decisions . Calculator Tutorial Let’s Take a Moment to Examine Key Calculator Functions… Home Row TVM Keys : N: # Compounding Periods I/YR: Interest per Year [ Note: Do NOT use decimal form of interest.] PV: Present Value PMT: Payment FV: Future Value Important Calculator Keystrokes : Clear: Orange C All Payments per Year: 1 Orange P/Yr Digits Shown: Orange DISP 5 Mode : Orange BEG/END Inflows: Enter as POSITIVE # Outflows: Enter as NEGATIVE # Future Value Future Value Compounding Problems Future Value  Single Sums If you deposit $100 in an account earning 6% , how much would you have in the account after 1 year ? 1 1 PV = PV = FV FV = Mathematical Solution: FV = PV (1 + i) n FV = 100 (1.06) 1 = $106 Notice that there is one equation and four variables. What does this tell you about how much information you need? “FVIF” FVIF” $100 $106 HOW ABOUT WITH THE CALCULATOR? Textbook Explanation: There is one equation and 4 variables. So, how many unknowns can you have? Possible Unknowns: I ( or r or k or I/Y) , PV, FV, N (For almost all TVM problems, you simply play a “4 find 3” game.) ONE Three Steps : 1) Setup Your Calculator [i.e. Clear Previous Data] 2) Enter the 3 Known Variables 3) Solve for the Unknown My Calculator Tips Use the 5 Variables for TVM on “home row” of calculator on each problem. Only ONE unknown . Value entered for other four variables, although usually one of the variables will be ZERO . Calculator TVM “Home”...
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This note was uploaded on 01/06/2012 for the course BUS M 2011 taught by Professor Jennlarson during the Fall '11 term at BYU.
 Fall '11
 JennLarson
 Management

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