Chapter 1
An Overview of Financial Management and
The Financial Environment
1-3
A firms fundamental, or intrinsic, value is the present value of its free cash flows when
discounted at the weighted average cost of capital. If the market price reflects all
cost of capital
CFs
CFs
NPV
6.10%
1
0
(97.50)
(97.50) 509.8361
$383.02
2
31.1
3
31.1
4 5-Forever
31.1
31.1
IRR Calculation - Use Goal seek since the discount rate for the perpetuity should be equal to IRR; Start with a random value for
In Goal Seek set NP
NPER
1-year bond
5-year bond today
5-year bond in 1 year
Current Yield 5 year bond in 1 year
1
5
4
6.00%
RATE
PV
3.00% ($970.87)
6.00% ($747.26)
6.00% ($792.09)
Use Goal seek. Set B12 equal to your 1-year bond yield, by changing C11
PMT
0 $
0 $
0 $
FV
1,0
LT growth rate
cost of capital
FCF
Continuation value
Sum of FCF & Cont. value
Value today
3%
16%
Year 1
-173,000
Year 2
13,000
Year 3
90,000
-173,000
$657,402.77
13,000
90,000
Year 4
150,000
1,188,462
1,338,462
4. You have a loan outstanding making 5 annual payments at the end of next 5 years of $3000 each. You can skip the next 4
payments in exchange of making one large payment at loan maturity. If the interest rate on the loan is 8.55%, what is the fin
loan pa
Discount rate
Investment old
Depreciation life old
Years after acquisition old is sold
Accumulated depreciation old
Book value old as of year 0
Selling price old
Taxable Profit from sale old
Net selling price old
Investment new
Depreciation life new
Tax r
Coupon rate
Number of payments per year
NPER
20
RATE
PV
PMT
4.01% -1067.21
9%
2
FV
45
1000
Remember to multiply your answer by # payments per year
Annual yield
8.01%
Annual yield
10.00%
Coupon rate
Number of payments per year
NPER
RATE
PV
PMT
20
5.00% ($9
1 of 2
IRR and Delayed Investments
2 of 2
IRR and Delayed Investments
Assume you have just retired as the CEO of a successful
company. A major publisher has offered you a book deal. The
publisher will pay you $1 million up front if you agree to
write a bo
Instructions
Given
Solve For FV
Date
PV
PMT
FV
Cash Flow
Enter 4 of the items N, I/Y, PV, PMT, or FV in the shaded area below, and the annuity calculator will
solve for the fifth item. The solution will be such that the cash flows shown on line 14 have NP
Chapter 4
MINI CASE
Assume that you are nearing graduation and have applied for a job with a local bank. As
part of the bank's evaluation process, you have been asked to take an examination that
covers several financial analysis techniques. The first sect
Chapter 3
Analysis of Financial Statements
3-2
The emphasis of the various types of analysts is by no means uniform nor should it be.
Management is interested in all types of ratios for two reasons. First, the ratios point out
weaknesses that should be st
Chapter 2
Financial Statements, Cash Flow, and Taxes
2-6
NOPAT is the amount of net income a company would generate if it had no debt and held
no financial assets. NOPAT is a better measure of the performance of a companys
operations because debt lowers i