FIN 380 Lesson 4: Chap. 5
Why does money have time value? Is interest rate always positive?
2. Simple Interest (no interest on interest)
FVsimple = PV * (1 + rt)
Compound Interest (interest on interest)
FVcompound = PV * (1 + r)t
If t>1, the
FIN 380 Lesson 6
1. Effective Annual Rates:
EAR 1 1
FV PV 1
PV (1 EAR )t
where m is the number of times per year interest is compounded, and r is the nominal interest rate,
3. Continuous Compounding
Feel free to ask any questions you need to accomplish the task-I am the client.
Portfolio should be able to accommodate at least 30 holdings.
The portfolio is actively traded but overall utilizes a buy and hold strategy.
The monthly cash f
Preliminary steps to Project 1-Southwest-Due September 29th
1. Get to know your company. Scan the companys 10K, most recent 10Q and annual
report. Your goal at this point is not to read the documents in-depth. Rather to get a feel
for the company. Since t
RNOA and NOPAT
You are calculating net operating profit after taxes.
1. Start with operating income.
2. Subtract the taxes listed on the income statement from step 1. May be called provision for
3. Next calculate the tax sh
Cost of Goods Sold
Income before taxes
Income tax expense
Fin 4041 First Project
Due date: 10/11/2016
What: submit a three page buy/sell recommend regarding Southwest Airlines. This report is to
be supported by a valuation of the firm (DCF model and company forecasts)
Specifics of report: Submit a three page rep
Loose ends for Project 1.
1. Capital structure:
a. You want to keep the ratio of equity to debt constant in your forecasted years. When
calculating retained earnings make sure that you use the formula: last years retained
earning plus this years net incom
Review Notes for Test 2
What is cumulative voting?
- A procedure in which a shareholder may cast all votes for one member of the board of directors.
The effect is to permit minority participation.
What is a commission broker?
- NYSE members who exec
Review Notes for Test 1
What is the controller of a corporation?
What is a capital budgeting decision?
What is a limited partner?
What are some ways to resolve the agency problem?
What is a proxy?
What is a primary market transaction?
Project Example Information
You are reviewing a new project and have
estimated the following cash flows:
CF0 = -165,000
CF1 = 63,120
CF2 = 70,800
CF3 = 91,080
Your required return for assets of this risk level is
Present Value Problem
Net Present Value Problem
First Yr CF
Second Yr CF
Third Yr CF
Fourth Yr CF
Fifth Yr CF
Net Present Value
Income Tax Calculation
Lower Income-bracket 2
Lower income-bracket 3
Income tax tables