Smart Sheet
Present Value and Future Value
Single
o Future value is the value at a given future date of an amount placed on deposit today
and earning interest at a specified rate
o PV is the inverse of compound interest
o Pam Valenti wishes to find the pr

Capital Budgeting:
Additional Issues and
Applications
Andy Koch
Overview
Opportunity costs, side effects, sunk costs
Evaluating projects that reduce costs
Evaluating projects with different lives
EAC, equivalent annual cost
Also from Chapter 10
Revie

11. The Cost of Capital
Andy Koch
1
Outline
Ch 14 (9th edition), Ch 15 (8th edition)
Cost of capital
how much it costs the company to use capital received
from investors
the amount that investors want to be paid in order to
invest in the firm
Importa

Capital Budgeting:
Methods for Evaluating
Projects
Andy Koch
Review and Introduction
There is a separation:
Some people have ideas that will produce money in the future, but not
the money required now to carry out the idea
Others have money now, but not

5-1 Future Value Compute the future value in year 8 of a $2,000 deposit in year 1 and
another $1,500 deposit at the end of year 3 using a 10 percent interest rate.
Use equation 5-1:
FV8 = $2,000 (1 + 0.10)7 + $1,500 (1 + 0.10)5 = $3,897.43 + $2,415.77 = $

LG2
13-1
NPV with Normal Cash Flows Compute the NPV for Project M and accept or reject the
project with the cash flows shown below if the appropriate cost of capital is eight percent.
Project M
Time
Cash Flow
0
1
2
3
4
5
$1,000
$35
0
$48
0
$52
0
$60
0
$10

CHAPTER 9 CHARACTERIZING RISK AND RETURN
Basic Problems:
LG1
9-1 Investment Return FedEx Corp stock ended the previous year at $103.39 per share.
It paid a $0.35 per share dividend last year. It ended last year at $106.69. If you owned 300
shares of FedEx

Wal-Mart
Always low prices, is the first thing you think of when you think about one
of the most successful companies around the world, Wal-Mart. For years
they stand as a well know company due to their everyday low prices and
variety of products. Their m