Finance
01/27/2014
In the early 2000s there were many financial scandals. They started
looking into the books and saw that there was a tremendous amount of
falsification and cheating. They went to the CEOs and they were oblivious
and ignorant. They blamed
Double Taxation tax at corporate level and then individually the
more you make the higher the percentage you are taxed on
$1,000,000 Sales $700,000 expenses= $300,000 Net income
30% tax of profit/net income (sole proprietor)
40% tax of profit/net incom
FV= Future Value
PV= Present Value
PMT= Payment
NPV= Net Present Value
IRR= Internal rate of return
The time value of money (TVM) is based on one principal: if I was
offered $100 today and $100 a year from now. Which would I take?
You can take it now and
Chapter 6
EAR effective annual rate the rate the deposits are setting. Each
EAR is different depending on the frequency of compounding
EAR= [1+ APR/m]^m1
APR= quoted rate
M= number of compounding periods of year (quarterly, daily, semiannually, monthly
PV
100
r
0.15
t
8
Equation Function
305.90 $305.90
A.
T
C
500
1
r
0.1
c
1
r
0.1
t
7
c
1
r
0.1
t
7
Equation Function
10 $10.00
B.
Equation Function
4.868419
$4.87
14.86842
C.
Equation Function
4.868419
$4.87
A.
PV?
FV
100
r
t
0.01
10
Equation Function
90.5
Chapter 7
Interest Rates
& Bond
Valuation
71
Key Concepts and Skills
Know the important bond features and
bond types
Understand bond values and why they
fluctuate
Understand bond ratings and what
they mean
72
Chapter Outline
Bonds and Bond Valuation
116
BASIC
(Questions 114)
72
IiGiimmkmwn '
3. Bond Prices Staind, lnc., has 7.5
4. Bond Yields Ackerman Co. has 9
5. Coupon Rates
6. Bond Prices Grohl Co. issued 1]
PA RT 3 Valuation of Future Cash Flow:
7. Real and Nominal Returns
investor might be m
CareerOpportunitiesinFinance
1) FinancialManagement
a) LargecorporationsTreasury&Controller
b) SmallerfirmsOftencombinebothfunctions
Cashmanagementanalystmonitoring&managing
firmsdaytodaycashinflows&outflows
Capitalexpenditureanalystestimatingcashflowsand
NON CONSTANT GROWTH MODEL
YEAR 1
YEAR 2
$D1
LAST YEAR OF
NON CONSTANT
GROWTH
$D2
_
$Dn
_
(1 + r)
$Dn(1+g)/(rg)
_
+
1
_
+ . +
(1 + r)
2
(1 + r)
PV OF
FUTURE PRICE
+
n
(1 + r) n
$D1 = Dividend in Year #1
$D2 = Dividend in Year #2
$Dn = Dividend in Last Yea
Chapter7
InterestRatesand
BondValuation
71
Key Concepts and Skills
Know the important bond features and
bond types
Understand bond values and why they
fluctuate
Understand bond ratings and what
they mean
72
Chapter Outline
Bonds and Bond Valuation
Chapter8
StockValuation
81
Key Concepts and Skills
Understand how stock prices
depend on future dividends and
dividend growth
Be able to compute stock prices
using the dividend growth model
82
Chapter Outline
Common Stock Valuation
Some Features of
BALANCE SHEET
DEBT
BANK LOAN
BONDS
TOTAL DEBT
EQUITY
PREFERRED STOCK
COMMON STOCK
RETAINED EARNINGS
TOTAL EQUITY
TOTAL DEBT+ EQUITY
WEIGHT
AFTER TAX
COST OF
CAPITAL
WEIGHTED
AVERAGE
COST OF
CAPITAL
WEIGHT
WEIGHTED
AVERAGE
COST OF
CAPITAL
20.00%
20.00%
4.8
CONSTANT GROWTH MODEL
$D0 ( 1 + g)
$P0
=
_ = _
r
$ P0
$ D0
$ D1
g
r
$D1

g
r  g
= Intrinsic Value of share today
= Most recent annual dividend paid
= Next expected annual dividend to be paid
= Expected constant growth (%) rate of dividends
= Required Re
CAPITAL ASSET PRICING MODEL
Re = Rf + [(Rm  Rf)]
Re = Required Return on Equity
Rf = Return on riskfree investment
Rm = Expected return on the market
= Risk factor
To calculate how much goes towards interest and principal is doing
interest find. You take the balance (100n) and multiply by interest rate
(5000 X8%=400). So the 400 goes towards the interest portion and
the remainder amount of the PMT minus the 100n goe
XYZ CORPORATION BOND
$1,000
8%
ISSUE DATE
MATURITY DATE
FEB 2016
FEB 2019
AUG 2016
FEB 2017
AUG 2017
FEB 2018
AUG 2018
FEB 2019
$ 40
$ 40
$ 40
$ 40
$ 40
$ 40
XYZ CORPORATION BOND
$1,000
8%
SEMIANNUAL PYTS
ISSUE DATE
MAT DATE
FEB 2016
FEB 2019
$ 1,000
FV