transactions (use a 9 percent annual interest rate for all transactions a. Borrowed $103‚000 for nine years. Will pay $9‚270 interest at the end of each year and repay the $103‚000 at the end of the 9th year. In transaction (a)‚ determine the present value of the debt. 1. We find PV of ANnuity of $1 for 9 Yrs at 9% = 5.9952 PV of $1 for 9Yrs @9% = 0.4604 So PV of debt = 9270*5.9952 + 103000*0.4604 = $1‚02‚997 b. Established a plant addition fund of $520‚000 to be available at the end of year
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Present value is where the value on a set date of a future payment is discounted to reflect the time value of money and other factors. This can also apply to a series of future payments. Present value calculations are commonly utilized in business and economics to provide a way to compare cash flows at different times. Present value can be described as the current worth of a future sum of money or stream of cash flows given a specified rate of return. (http://www.getobjects.com) Future cash flows
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Net present value is defined as the total present value (PV) of a time series of cash flows. It is a standard method for using the time value of moneyto appraise long-term projects. Used for capital budgeting‚ and widely throughout economics‚ it measures the excess or shortfall of cash flows‚ in present value terms‚ once financing charges are met. The advantages of the NPV are following; first‚ it tells whether the investment will increase the firm’s value. Also‚ it considers all the cash flows‚
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Assets Cash Accounts receivable Allowance for doubtful debts Inventory Property‚ plant and equipment Less Accumulated depreciation Total assets Liabilities Bank overdraft Accounts payable Accrued wages Provision for annual leave Loans Total liabilities Net assets Equity Share capital Revaluation reserve Retained earnings Total equity 96 000 36 000 (12 000) 92 000 156 000 (36 000) 332 000 2012 ($) 60 000 (8 000) 52 000 120 000 (20 000) 204 000 60 000 20 000 8 000 60 000 148 000 184 000 140 000 28 000
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about an entity’s cash receipts and cash payments during a period. To provide information on a cash basis about its operating‚ investing‚ and financing activities. The statement of cash flows therefore reports cash receipts‚ cash payments‚ and net change in cash resulting from operating‚ investing‚ and financing activities of an enterprise during a period‚ in a format that reconciles the beginning and ending cash balances. CASH FLOW STATEMENT It is a statement showing changes in
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CHAPTER 5 Net Present Value and Other Investment Criteria Answers to Problem Sets 1. a. A = 3 years‚ B = 2 years‚ C = 3 years b. B c. A‚ B‚ and C d. B and C (NPVB = $3‚378; NPVC = $2‚405) e. True f. It will accept no negative-NPV projects but will turn down some with positive NPVs. A project can have positive NPV if all future cash flows are considered but still do not meet the stated cutoff period. 2. Given the cash flows C0‚ C1‚ . . . ‚ CT
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any specification of values for all decision variables‚ regardless of whether it is a desirable or even allowable choice • feasible solution: a solution for which all the constraints are satisfied. • feasible region (constraint set‚ feasible set): the collection of all feasible solution • interior‚ boundary‚ face • extreme or corner or vertex point • objective function contour (iso-profit‚ iso-cost line) • optimal solution: a feasible solution that has the most favorable value of the objective
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CONCEPT OF PRESENT VALUE SO IMPORTANT FOR CORPORATE FINANCE? The importance of concept of present value to the world of corporate finance is that present value calculations are widely used in business and economics to provide a means to compare cash flows at different times. Present Value’s definition and simplistic formula used for normal purchases‚ the concept’s importance to corporate finance and why present value is the very first topic taught in finance classes explain that present value is an
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[pic]BUS/475 Sample Final Exam 1. Which of the following is NOT an element of manufacturing overhead? a. Factory employee’s salary 2. What accounts are NOT classified in the current assets section of the balance sheet? a. Accounts payable 3. The starting point of a master budget is the preparation of the a. sales budget. 4. What amounts are not included in Gross Margin? a. Operating expenses 5. At what rate is the income statement converted for US $ comparison
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. To find the PVA‚ we use the equation: PVA = C({1 – [1/(1 + r)]t } / r ) PVA = $60‚000{[1 – (1/1.0825)9 ] / .0825} PVA = $370‚947.84 The present value of the revenue is greater than the cost‚ so your company can afford the equipment. 7. Here we need to find the FVA. The equation to find the FVA is: FVA = C{[(1 + r)t – 1] / r} FVA for 20 years = $3‚000[(1.08520 – 1) / .085] FVA for 20 years = $145‚131.04 FVA for 40 years = $3‚000[(1.08540 – 1) / .085] FVA for 40
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