In-Class Examples
1. Blooper Industries: Calculate the project cash flows in each year and the project NPV and IRR.
The project requires an investment of $10 million. The equipment may be sold for $2 million by the end of year
5.
The company applies str
Finance(FNCE101)
Week 2
Financial Tools
Chapters 5, 6
Professor WANG Rong
1
TodaysAgenda
Simple Interest and Compound Interest
Future Value and Present Value
Perpetuity and Annuity
Growing Perpetuity and Annuity
Comparing Rates EAR vs. APR
Financial Calc
FNCE101
IN-CLASS EXERCISE
FREE CASH FLOW CALCULATION
The following details the 2005 financial statements for XYZ, Inc. (all the numbers are in
millions). Calculate the firms free cash flow assuming its effective tax rate is 36.5%.
BALANCE SHEET
2005
2004
FNCE 101
Supplemental Reading
INTERNAL RATE OF RETURN: A CAUTIONARY TALE
Tempted by a project with high internal rates of return? Better check those interim cash flows again.
The McKinsey Quarterly, McKinsey & Co., October 20, 2004
Maybe finance managers
Finance(FNCE101)
Introduction
Financial Statements
Chapters 1,2,3
Professor WANG Rong
1
TodaysAgenda
Discussion of Syllabus
Introduction to Finance (Chapter 1)
Business forms
Financial managers
Agency problems
Financial markets
Financial Statements (C
Solutions to In-Class Examples
1. Blooper Industries
The project requires an investment of $10 million. The equipment may be sold for $2
million by the end of year 5.
The company applies straight-line depreciation over 5 years. (Depreciation exp. is
$10
Solutions to Exam I, Finance 101
Part I
1.
6.
11.
16.
e
a
b
c
2.
7.
12.
17.
b
c
e
e
3.
8.
13.
18.
e
c
c
c
4.
9.
14.
19.
b
e
d
b
5.
10.
15.
20.
e
b
e
b
Part II
Question 1:
1. NPV for project 1 = pv(0.15, 3, 1000) 2000 = $283.
NPV for project 2 = pv(0.15, 3
Part I: Multiple Choice Questions (60 points). Each question is worth 3 points. Please write down
your answers clearly on the answer sheet.
1.
Which of the following are advantages of the corporate form of business ownership?
I.
limited liability for firm