Compounded Interest
If you will be making equal deposits into a retirement account for 10 years (with each payment at
the end of the year), how much must you deposit each year if the account earns 4% compounded
annually and you wish to have $500,000 after

Introduction to Finance and Excel
EXAMPLE
RENT
UTILITIES
PAY
Supplies
MISC.
$1,000.00
$250.00
$1,360.00
$1,750.00
$156.00
$4,516.00
Sales $6,000.00
Pre-tax $1,484.00
Taxes $593.60
Profit $890.40
Line 38:
$11,100.00
What if we change Jim's hours?
What loca

Present Value
Payment of $50,000 arrives in time 1 and $100,000 in time 10.
(a)
The present value = 50,000/(1.04) + 100,000/(1.0410) = $115,633.34
(b)
The value in time period 30 = 50,000 x (1.0429) + 100,000 x (1.0420) = $375,044.89
Alternatively, you ca

Various Cash Flow Balance Sheets
Year:
A. Fixed assets
Investments in fixed assets
0
1
2
3
4
CF, invest. in fixed assets
-5,000,000
0
0
0
0
B. Working capital
Working capital
Change in working capital
CF, invest. in wk capital
600,000
600,000
-600,000
700

Alternative Methods to Compounding Interest
Alternative method 1:
Step 1: Find FV in time 10 of 500,000 in time 30 using EAR = 4.074%: $224,963.57
Step 2: Solve for the payment that equals FV of 224,963.57 using =PMT() and EAR
($18,673.09)
You belong to a

Company Announcements Affecting Stock Prices
An example of a company with an announcement that caused the stock price to increase by more
than 1% is FMT shown below. The news was that the company had successfully arranged for an
increased line of credit.

Project Payback
This project pays back in year 6, so it pays back after the payback cutoff of 5 years and we reject
the project.
Under NPV we accept if the NPV is positive. So we accept under NPV
here.
Under IRR, we accept if the IRR is greater than the r