1.A liability is a probable future payment of assets or services that a company is presently obligated
to make as a result of past transactions or events.
2.A liability does not exist if there is any uncertain
Chapter 11 Game Theory and Strategic Behavior
Topics to be Discussed
Gaming and Strategic Decisions
The Nash Equilibrium
Sequential Games : Moving First Advantage ( GRADUATES ONLY )
Discounted Cash Flow Valuation
Comparing Rates (EAR and APR)
There are several different ways to quote interest rates.
When calculating the e act inte est ate, one should pa attention to the
and the compounding period.
Rates are quoted with diffe
Types of Cash Flows
A constant stream of cash flows that lasts forever
A stream of cash flows that grows at a constant rate for a fixed number of periods
A stream of constant cash flows that lasts for
Financial Statements, Taxes and Cash Flows
Ability to convert to cash quickly without a significant loss in value
Is liquidity necessarily a good thing?
Liquid firms are less likely to experience financial distress
But liquid assets typically ea
Present Value with Daily Compounding
You need $15,000 in 3 years for a new car. If you can deposit money into an account that pays
an APR of 5.5% based on daily compounding, how much would you need to deposit?
3(365) = 1,095 N
5.5 / 365 = .015068493 I/Y
Dividends are not liabilities of a corporation unless they are declared by the board of
Corporations do not need to pay dividends.
The payment of dividends by a corporation is not a business expense. Dividends are not
Interest Rates and Bond Valuation
Definition: A debt security that a corporation or a government issues when there is need
to borrow on a long-term basis.
A bond is normally an interest-only loan. Bonds and loans are called fixed-income
Constant Dividend Growth Examples
Suppose a stock has just paid a $5 per share dividend. The dividend is projected to grow
at 5% per year indefinitely. If the required return is 9%, what is the price today?
What will be the price one year from now? By w
Computing Payments with APRs
Suppose you want to buy a new computer system and the store is willing to allow you to make
monthly payments. The entire computer system costs $3,500. The loan period is for 2 years,
and the interest rate is 16.9% with monthly
Cash Flow vs. Income
We make a big sale today but allow the customer to pay in 24 months.
When should we record the revenue?
We buy a delivery truck that will last us ten years.
When should we record the expense?
According to GAAP (Generally Accepted
Bonds More Definitions
A bond that sells for exactly its face value is said to sell at par.
A bond that sells for less than its face value is called a discount bond or is said to sell at a
A bond that sells for more than its face value is cal