TODAY:
Calculator setup
Mr. Burns lecture example
A few problems from Ch.2
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Mr. Burns Lecture Example
Springfield mogul Montgomery Burns, age 85, wants to retire
at age 100 so he can steal candy from babies full time.
Once Mr. Burns retires, he
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Accounting and Finance
Accounting and ﬁnance are fundamentally different disciplines. Accounting
is a methodology for summarizing past transactions; while ﬁnance is a
methodology for planning future transactions.
This fundamental difference accounts
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Example 2
Now,consider another problem.
Let us assume that we wish to estimate how long we must wait for payment on invoices to a
prospective new customer, given that its sales equals 2500, its cost of sales percentage is 50
percent, its current lia
Mapping out a solution
Mapping is a method of planning how you will go about solving a problem involving many steps.
Sometimes it is difﬁcult to map from data A into missing quantity B, and it is easier to work
backward, mapping B into A.
Example 1
Consid
Tracey Lemmons
FIN-6631
HW Week 7 Questions (10-1; 10-2; 10-4; 10-5 10-6; 11-1; 11-2)
10-1
A project has an initial cost of $52,125; expected net cash inflows of $12,000 per year for 8
years, and a cost of capital of 12%. What is the projects NPV? (Hint:
Tracey Lemmons
FIN-6631
HW Week 6 Questions (8-3; 8-5; 9-2; 9-5; 9-7; 9-8)
8.3
Assume that you have been given the following information on Purcell Industries: According to
the Black-Scholes option pricing model, what is the options value? $1.67
8-5
Use t
Tracey Lemmons
FIN-6631
HW Week 4 Questions (6-1, 6-2, 6-4, 6-9, 6-11, 7-1, 7-2, 7-12)
6-1
An individual has $55,000 invested in a stock with a beta of 0.8 and another $40,000 invested in
a stock with a beta of 1.4. If these are the only two investments i
Tracey Lemmons
FIN-6631
HW Week 3 Questions (4-1, 4-2, 4-6, 4-8, 4-6 Redone, 5-1, 5-7)
4-1
If you deposit $10,000 in a bank account that pays 10% interest annually, how much will be in
your account after 5 years?
10000 * (1.1) ^ 5 = 16105.1
N=
5
I=
10%
PV
Tracey Lemmons
FIN-6631
HW Week 1 Questions (1-2, 1-3, 1-4, 1-7)
1-2
What are the three principal forms of business organization? What are the advantages and
disadvantages of each?
The three main forms of business organization are the proprietorship, the
Tracey Lemmons
FIN-6631
HW Week 2 Questions (3-6, 3-8, 3-13 a-c)
3-6
Donaldson & son has an ROA of 10%, a 2% profit margin, and a return on equity equal to 15%.
What is the company's total assets turnover? What is the firm's equity multiplier?
ROA = Profi
Self-Fulﬁlling Beliefs in Economics and Finance
Introduction
There are a number of examples of self—fulﬁlling beliefs in economies which make
equilibrium somewhat unstable, since beliefs can change overnight.
Price volatility.
If investors believe that th