TOPIC 4
Answers to Assignment
24. The time line is:
0
120
PV
$75,000
To find the PV of a lump sum, we use:
PV = FV / (1 + r)t
PV = $75,000 / (1.0057)120
PV = $37,918.16
25. The time line is:
0
45
PV
$1,000,000
To find the PV of a lump sum, we use:
PV = FV
TOPIC 3
Answers to Concepts Review and Critical Thinking Questions
1.
a. If inventory is purchased with cash, then there is no change in the current ratio. If
inventory is purchased on credit, then there is a decrease in the current ratio if it was
initia
FIN 2001 Financial Management
1
Lecture 4
Introduction to Valuation: Time
Value of Money
2
Key Concepts and Skills
Be able to compute the future
value of an investment made
today
Be able to compute the present
value of cash to be received at
some future d
FIN 2001 Financial Management
1
Lecture 10
Some Lessons from Capital
Market History
2
Key Concepts and Skills
Know how to calculate the return on
an investment
Understand the historical returns on
various types of investments
Understand the historical ris
FIN 2001 Financial Management
1
Lecture 7
Equity Markets and Stock
Valuation
2
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
Understand ho
FIN 2001 Financial Management
1
Lecture 12
Cost of Capital
2
Key Concepts and Skills
Know how to determine a firms cost
of equity capital
Know how to determine a firms cost
of debt
Know how to determine a firms
overall cost of capital
Understand pitfalls
FIN 2001 Financial Management
1
Lecture 5
Discounted Cash Flow Valuation
2
Key Concepts and Skills
Be able to compute the future value of
multiple cash flows
Be able to compute the present value of
multiple cash flows
Be able to compute loan payments
Be a
FIN 2001 Financial Management
1
Lecture 6
Interest Rates and Bond
Valuation
2
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
Understand the i
FIN 2001 Financial Management
1
Lecture 11
Risk and Return
2
Key Concepts and Skills
Know how to calculate expected
returns
Understand the impact of
diversification
Understand the systematic risk
principle
Understand the security market line
Understand th