Chapter 5 Time Value of Money
Future Value versus Present Value
Suppose a firm has an opportunity to spend $15,000 today on some investment that will produce $17,000
spread out over the next five years as follows:
Year
Cash Flow
1
$3,000
2
$5,000
3
$4,000
CH 5 - Cash inflows positive values
Cash outflows negative outflows
Single amount a lump sum amount either held currently or expected in future
Annuity level periodic stream of cash flow
Mixed stream stream of unequal periodic cash flows
Principal amount
QUESTIONS
If I sign up for the 30-year mortgage with an annual rate of 4.55%, the required monthly
payments will be $1,070.29. The total amount of interest paid throughout the life of the
$210,000 loan is $175,303.36.
Instead if I sign up for the 15-year
Chapter 5: Time Value of Money
Why the value of a dollar changed (increased) over the time? INFLATION
Problem:
Invest $1000
Interest 5%
After a year $1,050
Timeline
t=0
PV= 1000 (1+R)
t=1
t=2
PV= 1000 (1.05)
PV= 1000(1.05) ^ 2
PV= 1050
PV=1102.50
FV= PV (
Chapter 6
Valuation Fundamentals
Valuation is the process that links risk and return to determine the worth of an asset
How much cash when (timing of cash flow)
Risk (how certain are cash flows)
There are 3 key inputs to the valuation process:
1.
Cash flo
Chapter 4: Cash Flows and Financial Planning
Depreciation is the portion of the cost of fixed assets charged against annual revenues over time
o
Depreciation for tax purposes is determined by using the modified accelerated cost recovery system (MACRS)
o
O
Chapter 1: The Role of Managerial Finance
What is Finance
Finance can be defined as the science and art of managing money
Globalization
Legal Forms of Business Organization
More sole proprietorship; owned by one person
o No legal distinction between owner
FIN 320 Exam 2 practice
1. Book Values and the change in Depreciation:
You are given MACRS rates of 20%, 32%, 19%, 12%, 12% and 5%, a depreciable basis of
$100,000 for old equipment, $120,000 for replacement equipment, and a $10,000 salvage value for
the
Replacement
Input Data for Replacement Problem
Year
Old Equipment Cost installed/Market Value
New Equipment Cost/Market Value
NOWC/sales
tax rate
Wacc
Interest rate to borrow
First years sales
Variable costs % of sales (year 1)
First years fixed costs
Dep
3.
You are evaluating the proposed acquisition of a new milling machine. The machines base price is $88,0
cost another $12,000 to modify and install for your special use. The machine would be depreciated using
rates of 33% , 45% , 15% , and 7% . It would
3.
You are evaluating the proposed acquisition of a new milling machine. The machines base price is $88,0
cost another $12,000 to modify and install for your special use. The machine would be depreciated using
rates of 33% , 45% , 15% , and 7% . It would
Name: Max Kirsch
Face (par) Value
Coupon Interest Rate
Original Maturity
Remaining Life
Interest Paid semiannually
Flotation Costs
Call Premium on Existing Bond
Marginal Tax Rate
Interest Overlap Period
Treasury Bill Rate
Discount Rate
Before Tax
Call Pri
Fin 320
Exam
Name:
For all problems, show and/or explain all calculations. Insert lines as needed
1 Energy Corp issued $10 million, 20 year, 8% bonds, five years ago with a call provision of 10%.
The total flotation cost was then $500,000. Now, $10 millio
FIN315
9:30 - 10:45
Exam 3
NAME
1 Refinancing
You are paying 4% on a mortgage with an unpaid balance of $48,000 with 48 months to pay.
You can refinance this loan at 2%. Refinancing would require $480 in settlement fees
and two points, 2% of loan, as prep
Fin 320
Exam 1 - BLUE
Name
1 You put $1,000 into a fund today and at the end of each year for 20 years. How much will
you have in the fund at the end of the 20 years if the fund earns 8% compounded annually?
rate
n
cpy
Pmt
PV
FV
$50,422.92
2 You put $1,00
Fin 320
Exam
Name:
For all problems, show and/or explain all calculations. Insert lines as needed
1 Energy Corp issued $10 million, 20 year, 8% bonds, five years ago with a call provision of 10%.
The total flotation cost was then $500,000. Now, $10 millio
Financial Management
Mini Case # 1
Q. A
We can notice that sales are increased from 3.4 to 5.8 million$, nearly 70% increase, but on other hand
the net income is decreased by over 190,000$
Expansion increased the asset (nearly doubled)
Liability & Equity
1. The _ is the rate of return a firm must earn on its investments in projects in
order to maintain the market value of its stock.
A. yield to maturity
B. cost of capital
C. internal rate of return
D. gross profit margin
2. The cost of each type of capita
Dividend Policy Multiple Choice Questions
1. The residual theory of dividends suggests that dividends are _ to the value of the firm. (a) residual (b) relevant (c) irrelevant (d) integral Answer: C 2. The information content of dividends refers to (a) non
Chapter 17
Mergers, LBOs, Divestitures,
and Business Failure
Learning Goals
1.
Understand merger fundamentals, including terminology, motives for merging, and types of
mergers.
2.
Describe the objectives and procedures used in leveraged buyouts (LBOs) and
Chapter 15
Current Liabilities Management
LearningGoals
1.
Review the key components of credit terms, accounts payable, and the procedures for analyzing
them.
2.
Understand the effects of stretching accounts payable on their cost and on the use of accrual
1.
Holders of record are stockholders whose
names are recorded on the date of record.
Answer:
TRUE
2.
Purchasers of a stock selling ex-dividend
receive the current dividend.
Answer:
FALSE
3.
Date of record (dividends) is the actual
date on which the compa
Chapter 16
Hybrid and Derivative Securities
LearningGoals
1.
Differentiate between hybrid and derivative securities and their roles in the corporation.
2.
Review the types of leases, leasing arrangements, the lease-versus-purchase decision, the effects of