1. When interest decline the investment becomes more appealing or attractive.
When interest rate goes up, bond rate goes down (price of investment)
When interest rate goes down, bond rate goes up
2. K=K(*) + IP
3. Find PV of Annuity with 3 payments each o
Chapter 6
Discounted Cash
Flows and Valuation
1
Learning Objectives
1. Explain why cash flows occurring at different times
must be adjusted to reflect their value as of a common
date before they can be compared, and compute the
present value and future va
Lecture 2
The Time Value of Money
Key Concepts and Skills  Part 1
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 date
Be able to compute the return on an
investme
Chapter 5
Time Value of Money
1
Learning Objectives
1.
2.
3.
4.
Explain time value of money and its importance to the field
of finance.
Explain the concept of future value, including the meaning
of the terms principal, simple interest and compound
interes
Lecture 4
Stock Valuation and Equity Markets
42
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, corporate
value model and the multiples of
Lecture 3
Interest Rates and Bond Valuation
Key Concepts and Skills
Know the important bond features
and bond types
Understand bond values and why
they fluctuate
Understand the term structure of
interest rates
32
33
Lecture outline
Key Features Of Bonds
Lecture 1
Working with Financial Statements
12
Key Concepts and Skills
Know the difference between book
value and market value
Know the difference between
accounting income and cash flow
Know the difference between average
and marginal tax rates
Applicat
12.8 You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is
$140,000, and it would cost another $30,000 to modify the equipment for special use by the firm. The
equipment falls into the MACRS 3year class and w
9.2 Thomas Brothers is expected to pay a $0.50 per share dividend at the end of the year (that is, D1=$ 1.5 ).
The dividend is expected to grow at a constant rate of 7% a year. The required rate of return on the stock, , is
15%. What is the stocks current
Lecture 5
Capital Asset Pricing Model
52
Key Concepts and Skills
Understand variance as a measure of
total risks
Understand the modern portfolio
theory
Understand Capital asset pricing
model (CAPM)
Know how to calculate expected
returns based on CAPM
53
FIN300: Chapter 8
102416
AAR = Average Net Income / Average Book Value
IRR assumes reinvestment at IRR.
NPV assumes reinvestment at the firms weighted average cost of capital (opportunity cost
of capital).
Average Book Value
P.I. = PV inflows / cost
FIN300: Chapter 4
91816
4.1 Future Value and Compounding
Future Value (FV) refers to the amount an investment is worth after one or more periods.
 Compounding: The process of accumulating interest in an investment over time to
earn more interest.
 Sim
FIN300: Chapter 5
92116
5.1 Future and Present Values of Multiple Cash Flows
Timing assumption: When discussing cash flows, unless otherwise specified, the cash flows
occur at the end of the period.
There are 2 ways to calculate future values for multip
FIN300: Chapter 3
9616
3.1 Standardized Financial Statements
Commonsize Statement is a standardized financial statement presenting all items in
percentage terms.
 This is used to compare companies better as it is hard to compare companies when
their s
FIN340: Real Estate Principles
Ch. 2
What is real estate?
Land and things attached to the land.
Real property: Legal interests in land and things attached to the land.

Real property is benefits gained from owning real estate / legal interests.
Personal
ECON320: Chapter 4
Jan. 31
Compounding
What if interest is paid monthly?
1. Divide annual interest rate by # of time periods per year.
2. In calculating PV, set n = # of times per year.
EXAMPLE: 50,000 at annual interest of 3% compounded monthly, paid ove
FIN300: Review
CHAPTER 6
Bond Values and Yield
Yield to maturity (YTM): The rate required in the market on the bond.
Current yield: Bonds coupon payment / price.
Discount bond: Bond sells for less than its face value.

The investor makes a gain when the
11.23 Your division is considering two projects. Its WACC is 10%, and the projects aftertax cash flows (in
millions of dollars) would be as follows:
1.
Calculate the projects NPVs, IRRs, MIRRs, regular paybacks, and discounted paybacks.
2.
If the two pro