At A and B
Excess Supply of Money (MS>MD) r> r Bond P Bond l rl Md l Md= MS
At C and D
Excess Demand for M (MD>Ms) r> r Bond P Bond l rl Md l Md= MS
At B and C
Excess Supply o
Replacement Analysis Problem: The Pear Toy Corporation currently uses an injection molding machine that was purchase 2 years ago. This machine is being depreciated on a straight line basis toward a $500 salvage value, and it has 6 years of remaining life.
Depreciation: Modified Accelerated
Cost Recovery System (MACRS)
Tuitional BBA Business Finance P O
Created several classes of assets. The MACRS class life bears only a rough relationship to the expected useful economic life. A major effect of the M
The market for stock that is just being offered to the public is called the initial public offering (IPO) market. The value of a share of stock is calculated as the present value of the stream of dividends the stock is expected to provide
A long-term debt instrument.
Treasury bonds: government bonds Corporate bonds: exposed default risk Municipal bond: issued by state and local governments. The interest earned is exempt from federal taxes. Foreign bonds: issue
Capital Budgeting Projects
0 1 2 3 4
Year I. Investment Oulays 1 2 3 4 5 6 7
II.Operating Cash flows over the project's life
1 2 3 4 5 6 7 8 9 10 11 12 III. Terminal Year Cash flows 1 2 3 4 5 6 IV. Net Cash Flows Net Cahs Flow time liine V. Results NPV (.
Relevant Cash Flows
1. Capital budgeting decision must be based on cash flow, not accounting income. 2. Only Incremental cash flows are relevant to the accept/reject decision.
Recall, Net cash flow = Net income = Return on Cap + Depreci
Capital Budgeting: Decision Rules
P O Tuitional BBA Business Finance
Year 0 1 2 3 4
Expected After-tax Net CF Project S Project L -1,000 -1,000 500 100 400 300 300 400 100 600
: NPV Profiles
A graph which plots a projects NPV against the discount rates.
Capital Budgeting: Investment Decision
RWJ, Ch. 10 and 11 Brigham and Houston, Fundamentals of FM,
Ch. 10, 11, and 12
Key Concepts and Skills
Understand how to determine the relevant cash flows for various types of proposed inve
Equilibrium in Goods Market Y = DAE =
Or = =
IS (r) GDP (Y)
2 (1) Slope IS = (2)
I/ r rl Il DAE Shift Y l
Expenditure Multiplier rl Il DAE Shift Y l
Shift IS Curve
Social Welfare Economies of Scale Technology improvement.
Foreign Exchange Rate
ex rate Export and Import Income (GDP)
Demand for Foreign Exchange
Derived Demand (