FINA 362
SET 1
Coupon Rate
NPER
RATE
PV
PMT
FV
PV
Chapter 6
BOND RELATIONSHIP I
B
10%
20
8.00%
?
$100.00
$1,000.00
$1,196.36
A
10%
20
10.00%
?
$100.00
$1,000.00
$1,000.00
If coupon rate = discount rate
Bond will sell AT PAR
If coupon rate > discount rate
RATIOS PROBLEMS
PROBLEM 1
Suppose you are given the following:
CL = $5,600
NWC = $2,100
Inventory = $3,900
Compute Quick Ratio
NWC = CA - CL; 2100 = CA - 5600; CA = 2100 + 5600 = 7700
QR = (CA - Inv)/CL; QR = (7700 - 3900)/5600; QR = 0.68
PROBLEM 2
Sup
Chapter 9: Making
Capital Investment
Decisions
Relevant Cash Flows
What to include and what to ignore
Capital Budgeting Steps
Computing Depreciation
Practice Problems
Chapter 8: Net Present Value
and Other Investment Criteria
Payback Period
Net Present Value
Profitability Index
Internal Rate of Return
Modified Internal Rate of
Return
Chapter 6: Interest Rates
and Bond Valuation
Bond Definitions
Who Issues Bonds?
Bond Characteristics
Bond Valuations
Bond Relationships
Computing YTM
Inflation and Interest Rates
Problem 1
APR=
Annually
Semi-annually
Quarterly
Monthly
Daily
Problem 2
14%
14%
14.49%
14.75%
14.93%
15.02%
Book Problem 30 pg 156
PMT
PV
FV
N
I
$831.98
-43000
0
60
0.52083%
Problem 3
First account
Nom
C/Y
EAR
5.25%
365
5.39%
Second account
Nom
C/Y
EAR
5.
Primary Markets
The corporation is the seller
Engage in two market transactions
o Public offerings
o Private placements
Secondary Markets
Involves one owner or creditor selling to another
Transferring ownership of corporate securities
Management goals
Problem 1
APR=
Annually
Semi-annually
Quarterly
Monthly
Daily
Problem 2
14%
14%
14.49%
14.75%
14.93%
15.02%
Book Problem 30 pg 156
PMT
PV
FV
N
I
$831.98
-43000
0
60
0.52083%
Problem 3
First account
Nom
C/Y
EAR
5.25%
365
5.39%
Second account
Nom
C/Y
EAR
5.
PV of a Stock Derivation
Thus, PV of a stock is present value of all future expected dividends.
Zero Growth Model Formula Derivation
The firm will pay a constant dividend forever.
That means the dividends are the same each period.
This becomes a perpetuit
Chapter Preview
Terminology and useful spreadsheet functions
Compounding and Discounting of Single Sum
4-1
Palkar
Learning Outcomes
Determine the future value of an investment made today
Determine the present value of cash to be received at a future
date
Chapter 04 Introduction to Valuation: The Time Value of Money
CHAPTER 4
INTRODUCTION TO VALUATION: THE
TIME VALUE OF MONEY
Summarizing major points in this Chapter (Learning Outcomes)
1.
2.
3.
4.
Determine the future value of an investment made today
Dete
Chapter 06 - Interest Rates And Bond Valuation
CHAPTER 6
INTEREST RATES AND BOND
VALUATION
Answers to Concepts Review and Critical Thinking Questions
1.
No. As interest rates fluctuate, the value of a Treasury security will fluctuate. Long-term Treasury
s
Chapter 07 - Equity Markets and Stock Valuation
CHAPTER 7
EQUITY MARKETS AND STOCK
VALUATION
Answers to Concepts Review and Critical Thinking Questions
1.
The value of any investment depends on its cash flows; i.e., what investors will actually receive. T
Chapter 05 - Discounted Cash Flow Valuation
CHAPTER 5
DISCOUNTED CASH FLOW VALUATION
Answers to Concepts Review and Critical Thinking Questions
1.
Assuming positive cash flows and a positive interest rate, both the present and the future value will
rise.
Chapter 5 Disc. CF Valuation Part 1
FIN 3010 Dr. Palkar
Palkar
Chapter Preview
Terminology and useful spreadsheet functions Annuities
(Sections 5.2)Perpetuities (Section 5.2)Uneven cash flow
(Section 5.1)
Note: Other sections will be covered next week
5-1
Chapter 08 - Net Present Value and other Investment Criteria
CHAPTER 8
NET PRESENT VALUE AND OTHER
INVESTMENT CRITERIA
Answers to Concepts Review and Critical Thinking Questions
1.
A payback period less than the projects life means that the NPV is positiv
PAYBACK PERIOD
Definition: Time to recover initial investment
Decision Rule: ACCEPT is Payback Period < Preset Limit
NET PRESENT VALUE
Definition: NPV = PV of all future cash flows + Initial Outlay
Decision Rule: ACCEPT if NPV > 0
PROFITABILITY INDEX
Defi
PROBLEM 1
Year
CF
Balance Remaining
0
-500
-500
1
150
-350
2
150
-200
3
150
-50
4
150
0.33
Therefore, payback period =
3.33
Note that, during the 4th year, you only
need $50 to recover your initial
investment. During the 4th year, the cash
flows are $150.
Assets
CA
FA
TA
$
L&E
$
$885,000 CL
$805,000
$1,770,000 LTD
$200,000
Total Liab
$1,005,000
Equity
$1,650,000
$2,655,000 L&E
$2,655,000
Total Liabilities = CL + LTD
CL = Total Liabilities - LTD
Total L& E = Total Liabilities + Equity
Equity = Total L&E - T