1 Review for Exam 1 Instructions: Please read carefully The exam will have 20 multiple choice questions and 4 work problems. Questions in the multiple choice section will be either concept or calculation questions. The calculation questions will be similar to those in the quizzes, assignment, and review. However, the concept questions will be related to any topic in chapter 1 we have covered in the class. The concept questions in the review are only some sample questions. You should NOT study only topics in the review. For the work problems, you need to solve the problems without knowing the possible answers. The questions will be similar to those in the quizzes, assignment, and review except that the possible solutions are not given. You can bring a formula sheet to the exam.
2 Chapter 1 CONTROLLER 1. The person generally directly responsible for overseeing the tax management, cost accounting, financial accounting, and data processing functions is the: a. treasurer. b. director. c. controller. d. chairman of the board. e. chief executive officer. TREASURER 2. The person generally directly responsible for overseeing the cash and credit functions, financial planning, and capital expenditures is the: a. treasurer. b. director. c. controller. d. chairman of the board. e. chief operations officer. SOLE PROPRIETORSHIP 3. A business owned by a single individual is called a: a. corporation. b. sole proprietorship. c. general partnership. d. limited partnership. e. limited liability company. GENERAL PARTNERSHIP 4. A business formed by two or more individuals who each have unlimited liability for business debts is called a: a. corporation. b. sole proprietorship. c. general partnership. d. limited partnership. e. limited liability company. LIMITED LIABILITY COMPANY 5. A business entity operated and taxed like a partnership, but with limited liability for the owners, is called a: a. limited liability company. b. general partnership. c. limited proprietorship. d. sole proprietorship. e. corporation. AGENCY PROBLEM 6. A conflict of interest between the stockholders and management of a firm is called: a. stockholders liability. b. corporate breakdown. c. the agency problem. d. corporate activism. e. legal liability.
3 SECONDARY MARKET 7. When one shareholder sells stock directly to another the transaction is said to occur in the: a. dealer market. b. primary market. c. secondary market. d. OTC market. e. NASDAQ market. PARTNERSHIP 8. A general partner: a. has less legal liability than a limited partner. b. has more management responsibility than a limited partner. c. faces double taxation whereas a limited partner does not. d. cannot lose more than the amount of his/her equity investment. e. is the term applied only to corporations which invest in partnerships. PARTNERSHIP 9. Which of the following are disadvantages of a partnership? I. limited life of the firm II. personal liability for firm debt III. greater ability to raise capital than a sole proprietorship IV. lack of ability to transfer partnership interest a. I and II only b. III and IV only c. II and III only d. I, II, and IV only e. I, III, and IV only NASDAQ 10. Which of the following statements concerning NASDAQ are correct? I. Most smaller firms are listed on NASDAQ rather than on the NYSE. II. NASDAQ is an electronic market. III. NASDAQ is an auction market. IV. NASDAQ is an OTC market. a. I and II only b. I and III only c. II and IV only d. I, II, and IV only e. I, II, III, and IV
4 Chapter 2 Use these financial statements to answer the following questions Balance Sheet Cash $ 1,100 $ 1,300 Accounts payable $ 3,000 $ 2,100 Accounts receivable 3,900 3,600 Long-term debt 6,800 7,300 Inventory 5,600 5,100 Common stock 8,800 9,000 Net fixed assets 10,900,800 Retained earnings 2,900 4,400 Total assets $21,500 $22,800 Total liabilities and equity $21,500 $22,800 Income Statement Net Sales $41,000 Costs 31,500 Depreciation 1,600 EBIT 7,900 Interest 400 Taxable income 7,500 Taxes 1,5 Net Income $ 6, What is the amount of the current assets for 2005? a. $4,900 b. $10,000 c. $10,600 d. $22,800. What is the amount of the net working capital for 2005? a. $600 b. $2,800 c. $7,900 d. $13, What is the total amount of stockholders equity for 2005? a. $4,400 b. $9,000 c. $13,400 d. $22, What is the amount of the non-cash expenses? a. $1,600 b. $2,000 c. $4,625 d. $4, What is the amount of dividends paid this year? a. $3,575 b. $4,875 c. $6,375 d. $7, What is the amount of the cash flow from operations? a. $6,375 b. $7,900 c. $7,975 d. $8, What is the amount of net capital spending? a. $300 b. $1,900 c. $2,900 d. $3, What is the change in net working capital? a. -$800 b. -$300 c. $300 d. $ What is the amount of the cash flow to creditors? a. -$800 b. -$100 c. $100 d. $ What is the amount of the cash flow to stockholders? a. $3,175 b. $3,375 c. $4,675 d. $6,375
5 BALANCE SHEET 21. The financial statement showing a firm s accounting value on a particular date is the: a. income statement. b. balance sheet. c. statement of cash flows. d. tax reconciliation statement. e. shareholders equity sheet. CURRENT ASSETS 22. A current asset is: a. an item currently owned by the firm. b. an item that the firm expects to own within the next year. c. an item currently owned by the firm that will convert to cash within the next months. d. the amount of cash on hand the firm currently shows on its balance sheet. e. the market value of all items currently owned by the firm. SHAREHOLDERS EQUITY 23. A firm has common stock of $100, paid-in surplus of $300, total liabilities of $400, current assets of $400, and fixed assets of $600. What is the amount of the shareholders equity? a. $200 b. $400 c. $600 d. $800 e. $1,000 CASH FLOW TO STOCKHOLDERS 24. Thompson s Jet Skis has operating cash flow of $218. Depreciation is $45 and interest paid is $35. A net total of $69 was paid on long-term debt. The firm spent $180 on fixed assets and increased net working capital by $38. What is the amount of the cash flow to stockholders? a. -$104 b. -$28 c. $28 d. $114 e. $142 Chapter 5 SIMPLE INTEREST 25. Thomas invests $100 in an account that pays 5 percent simple interest. How much money will Thomas have at the end of five years? a. $0.00 b. $3.68 c. $4.92 d. $5.00 e. $7.63
6 26. Alpha Bank pays interest of 4 percent compounded annually. Beta Bank pays 4 percent simple interest. Which one of the following statements is true if you invest $1,000 in each bank for five years? a. Alpha Bank will pay you a total of $200 in interest over the five years. b. Beta Bank will pay you more interest over the five years than Alpha Bank will. c. Alpha Bank will pay you a total of $ in simple interest. d. Alpha Bank will pay you $16.65 of interest on interest. 27. Martha wants to have $10,000 in her investment account ten years from now. How much does she have to deposit today to achieve her goal if she can earn 8 percent compounded annually? a. $4, b. $4, c. $5, d. $5, Jim has $1,650 saved today. He wants to buy a different vehicle as soon as he has $3,200 saved. How long does Jim have to wait to get his vehicle if he earns 7.5 percent compounded annually? a years b years c years d years 29. Linens, Etc. currently pays an annual dividend of $1.60 per share. At what rate must the company increase their dividend if they want to pay $2.40 a share three years from now? a percent b percent c percent d percent 30. Lewis borrows $10,000 today at 8.25 percent compounded annually. The terms of the loan require Lewis to repay the principal and interest in one lump sum four years from today. How much will Lewis have to pay in four years? a. $13, b. $13, c. $13, d. $13, All else equal, the future value will as the period of time increases. a. increase b. decrease c. remain constant 32. You have been offered a business opportunity that will pay you $25,000 in five years if you invest $10,000 today. What is the expected rate of return on this investment? a percent b percent c percent d percent 33. All else equal, the present value will as the rate of return decreases. a. increase b. decrease c. remain constant 34. You opened a savings account four years ago and deposited $200 at that time. Three years ago, you added another $400 to the account. Last year, you deposited an additional $100 into this account. The rate of return is 5 percent compounded annually. How much is in your account today? a. $ b. $ c. $ d. $ Your grandmother deposited $1,000 into an account for you fifteen years ago. Today, the account is worth $3,548. If interest is compounded annually, what rate of return have you been earning on this money? a percent b percent c percent d percent
7 FUTURE VALUE AND RATE CHANGES 36. Alpo, Inc. invested $500,000 to help fund a company expansion project scheduled for eight years from now. How much additional money will they have eight years from now if they can earn 9 percent rather than 7 percent on this money? a. $58, b. $86, c. $118, d. $6, e. $137, FUTURE VALUE AND TIME CHANGES 37. You deposit $3,000 in a retirement account today at 5.5 percent interest. How much more money will you have if you leave the money invested for forty-five years rather than forty years? a. $7, b. $7, c. $7, d. $7, e. $7, PRESENT VALUE AND TIME CHANGES 38. When you retire forty years from now, you want to have $1 million. You think you can earn an average of 8.5 percent on your money. To meet this goal, you are trying to decide whether to deposit a lump sum today, or to wait and deposit a lump sum five years from today. How much more will you have to deposit as a lump sum if you wait for five years before making the deposit? a. $18, b. $18, c. $18, d. $19, e. $21,036.83
8 Chapter The more frequently interest is compounded, the interest you will pay on a loan and the interest you will receive on a savings account. a. more; more b. more; less c. less; less d. less; more 40. You have two sets of unequal payments which are alike in every respect except that series A pays their payments at the beginning of each period and series B pays their payments at the end of each period. Which one of the following statements is true concerning these two series of payments? a. The future value of series B will be greater than the future value of series A. b. The net present value of both series of payments are equal. c. Series B will pay more payments than series A. d. The net present value of series A will be greater than the net present value of series B. 41. You can afford car payments of $180 a month for five years. The interest rate is 3.9 percent, compounded monthly. How much can you afford to borrow to buy a car? a. $7, b. $8, c. $9, d. $9, A preferred stock pays annual dividends of $4.00. How much are you willing to pay today to buy one share of this stock if you want to earn a 14 percent rate of return? a. $28.57 b. $28.93 c. $29. d. $ A project will produce cash flows of $3,000, $2,500 and $6,000 a year for the next three years, respectively. What is the value of these cash flows today at a discount rate of 9 percent? a. $8, b. $9, c. $10, d. $14, You are going to receive $10,000 at the beginning of each quarter for the next three years. What is the net present value of these payments at a discount rate of 9 percent, compounded quarterly? a. $104, b. $106, c. $107, d. $108, What is the effective annual rate of 11.5 percent compounded monthly? a..01 percent b..07 percent c..13 percent d..18 percent 46. What is the effective annual rate of percent compounded continuously? a percent b percent c percent d percent 47. You borrow $200,000 for thirty years at 9 percent. Payments are made monthly beginning one month from the date of the loan. This is an amortized loan. How much of the first payment goes to the principle balance of the loan? Assume that one month is equal to 1/ of a year. a. $ b. $ c. $1.08 d. $ You just purchased a 10-year annuity at a cost of $5,000. The annuity will pay you $1,250 on the first of each month, commencing today. What rate of return are you earning on this investment? a percent b percent c percent d percent
9 ORDINARY ANNUITY AND PRESENT VALUE 49. You just won the lottery! As your prize you will receive $1,200 a month for 100 months. If you can earn 8 percent on your money, what is this prize worth to you today? a. $87, b. $87, c. $87, d. $88, e. $90, ANNUITY DUE AND PRESENT VALUE 50. You need some money today and the only friend you have that has any is your miserly friend. He agrees to loan you the money you need, if you make payments of $20 a month for the next six month. In keeping with his reputation, he requires that the first payment be paid today. He also charges you 1.5 percent interest per month. How much money are you borrowing? a. $ b. $ c. $ d. $ e. $ ORDINARY ANNUITY VERSUS ANNUITY DUE 51. You are scheduled to receive annual payments of $10,000 for each of the next 25 years. Your discount rate is 8.5 percent. What is the difference in the present value if you receive these payments at the beginning of each year rather than at the end of each year? a. $8,699 b. $9,217 c. $9,706 d. $10,000 e. $10,850 ORDINARY ANNUITY AND FUTURE VALUE 52. What is the future value of $2,400 a year for three years at an 8 percent rate of interest? a. $6, b. $6, c. $7, d. $7, e. $8,414.67
10 ORDINARY ANNUITY PAYMENTS AND PRESENT VALUE 53. You retire at age 60 and expect to live another 27 years. On the day you retire, you have $464,900 in your retirement savings account. You are conservative and expect to earn 4.5 percent on your money during your retirement. How much can you withdraw from your retirement savings each month if you plan to die on the day you spend your last penny? a. $2, b. $2, c. $2, d. $2, e. $2, ORDINARY ANNUITY TIME PERIODS AND PRESENT VALUE 54. You are considering an annuity which costs $100,000 today. The annuity pays $6,000 a year. The rate of return is 4.5 percent. What is the length of the annuity time period? a years b years c years d years e years ORDINARY ANNUITY INTEREST RATE 55. Your insurance agent is trying to sell you an annuity that costs $100,000 today. By buying this annuity, your agent promises that you will receive payments of $ a month for the next 40 years. What is the rate of return on this investment? a percent b percent c percent d percent e percent UNEVEN CASH FLOWS AND PRESENT VALUE 56. You are considering two savings options. Both options offer a 4 percent rate of return. The first option is to save $1,200, $1,500, and $2,000 a year over the next three years, respectively. The other option is to save one lump sum amount today. If you want to have the same balance in your savings at the end of the three years, regardless of the savings method you select, how much do you need to save today if you select the lump sum option? a. $4, b. $4, c. $4, d. $4, e. $4,857.92
11 PERPETUITY PRESENT VALUE 57. A 9 percent preferred stock pays an annual dividend of $4.50. What is one share of this stock worth today? a. $.41 b. $4.50 c. $5.00 d. $45.00 e. $50.00 ANNUAL PERCENTAGE RATE 58. You are paying an effective annual rate of 13.8 percent on your credit card. The interest is compounded monthly. What is the annual percentage rate on your account? a percent b..00 percent c percent d percent e percent EFFECTIVE ANNUAL RATE 59. Your credit card company quotes you a rate of 14.9 percent. Interest is billed monthly. What is the actual rate of interest you are paying? a percent b percent c percent d percent e percent
12 Answers 1. c 2. a 3. b 4. c 5. a 6. c 7. c 8. b 9. d 10. d 11. b Current assets for 2005 = $1,300 + $3,600 + $5,100 = $10,000. c Net working capital for 2005 = $1,300 + $3,600 + $5,100 $2,100 = $7, c Stockholders equity for 2005 = $9,000 + $4,400 = $13, a The non-cash expenses = $1,600 which is the depreciation amount. 15. b Dividends paid = $6,375 ($4,400 $2,900) = $4, d Cash flow from operations = $7,900 + $1,600 $1,5 = $8, d Net capital spending = $,800 $10,900 + $1,600 = $3, c Change in net working capital = ($1,300 + $3,600 + $5,100 $2,100) ($1,100 + $3,900 + $5,600 $3,000) = $ b Cash flow to creditors = $400 ($7,300 $6,800) = $100 (negative) 20. c Cash flow to stockholders = $6,375 ($4,400 $2,900) ($9,000 $8,800) = $4, b 22 c 23 c 23. Shareholders equity = $400 + $600 - $400 = $600 (Note: The amount of retained earnings is not provided, so you must use total assets minus total liabilities to derive the correct answer.) 24 a 24. Cash flow from assets = $218 - $38 - $180 = $0; Cash flow to creditors = $35 (-$69) = $104; Cash flow to stockholders = $0 - $104 = -$ d 25. Ending value = $100 + ($ ) = $ d Alpha Bank: $1,000(1.04) 5 - $1,000 = $ compound interest Beta Bank: $1,000(.04)(5) = $ simple interest Interest on interest paid by Alpha Bank = $ $ = $ a PV = $10,000[1/(1.08) 10 ] = $4, Enter ,000 Solve for -4, c $3,200 = $1,650(1.075) t = t ln = t(ln 1.075) =.07232t t = 9.16 Enter 7.5 ±1,650 3,200 Solve for 9.16
13 29. a Enter 3 ± Solve for Manual check: $1.60(1.1447) 3 = $ c FV = $10,000(1.0825) 4 = $13, Enter ,000 Solve for -13, a All else equal, the future value will increase as the period of time increases. 32. a Enter 5 ±10,000 25,000 Solve for Manual check: $10,000( ) 5 = $25,000 Answer is 20.11% (rounded) 33. a All else equal, the present value will increase as the rate of return decreases. 34. c FV = $200(1.05) 4 + $400(1.05) 3 + $100(1.05) 1 = $ $ $ = $ Enter 4 5 ±200 Solve for Enter 3 5 ±400 Solve for Enter 1 5 ±100 Solve for Total FV = $ $ $ = $ b Enter 15 ±1,000 3,548 Solve for Manual check: $1,000( ) 15 = $3, Answer is 8.81% (rounded) 36 e 36. Future value = $500,000 (1 +.09) 8 = $996,281.32; Future value = $500,000 (1 +.07) 8 = $859,093.09; Difference = $996, $859, = $137, Enter ,000 Solve for 996, Enter ,000 Solve for 859, c 37. Future value = $3,000 ( ) 45 = $33,379.66; Future value = $3,000 ( ) 40 = $25,539.93; Difference = $33, $25, = $7,839.73
14 Enter ,000 Solve for 33, Enter ,000 Solve for 25, d Present value = $1,000,000 [1 ( ) 40 ] = $38,265.77; Present value = $1,000,000 [1 ( ) 35 ] = $57,538.58; Difference = $57, $38, = $19, Enter ,000,000 Solve for -38, Enter ,000,000 Solve for -57, a The more frequently interest is compounded, the greater the amount of interest either paid or received. 40. d The sooner payments are received, the greater the net present value. 41. d 42. a 43. b /(1 + ) = $ APV ; APV = $ ; APV = $9, Enter 5 3.9/ -180 Solve for 9, $4.00 PV = ; PV = $ NPV $9, $3, $2,500 + $6, ( 1+.09) (1 +.09) (1 +.09) = 3 ; NPV = Enter 1 9 3,000 Solve for -2, Enter 2 9 2,500 Solve for -2, Enter 3 9 6,000 Solve for -4,633.10
15 NPV = $2, $2, $4, = $9, /(1 + ) b PV = $10, A due = $10, = $106, Enter 3 4 9/4 10,000BGN Solve for -106, c EAR = + 1; EAR =.13 percent Enter 11.5 NOM EFF C/Y Solve for c EAR = e ; EAR = ; EAR = percent Input for Texas Instruments BA II plus.1025, 2 nd, e x, -1,=; EAR = percent 47. a $200,000= /(1 + ) C ; $200,000 = C ; C = $1, Enter 30 9/ 200,000 Solve for -1, Interest 1 = $200,000 ; First month s interest = $1, First month s principle = $1, $1, = $ r /(1 + ) r 48. b $5,000 = $1, r ; This can not be solved directly, so it s easiest to just use the calculator method to get an answer. You can then use the calculator answer taken to several decimal places as the rate in the formula just to verify that you answer is correct. Enter 10 / -5,000 1,250BGN Solve for 3.80 With more decimals, the answer is
16 49 b /(1 + ) APV = $1, = $1, = $87, b Enter 100 8/ 1,200 Solve for -87, /( ) A due PV = ) = $ = $ [ ] 50. $20 ( a Enter BGN Solve for [ 1/( ) ] 51. APV = $10,000 = $10, = $102, Enter ,000 Solve for -102, [ 1/(1.085) ] ( A due PV = $10,000 ) = $10, =.085 $111, Enter ,000BGN Solve for -111, d 52. Difference = $111, $102, = $8, = $8,699 (rounded) Note: The difference =.085 $102, = $8, (1 +.08) 3 1 AFV = $2,400 = $2, = $7, Enter 3 8 2,400 Solve for -7,791.36
17 53 e /(1 + ) $464,900 = C.045 ; $464,900 = C ; C = $2, c Enter / -464,900 Solve for 2, t 1 [ 1/( ) ] 54. $100,000 = $6, ; ln4 = t ln1.045; t = a a 56. Enter ,000 6,000 Solve for r /(1 + ) $100,000 = $ ; This can not be solved directly, so it s easiest r to just use the calculator method to get an answer. You can then use the calculator answer as the rate in the formula just to verify that you answer is correct. Enter 40 / -100, Solve for 3.45 PV $1,200 1 ( 1+.04) 1 + $1,500 (1 +.04) 1 + $2,000 (1 +.04) = ; PV = $4, Enter 1 4 1,200 Solve for -1, Enter 2 4 1,500 Solve for -1, Enter 3 4 2,000 Solve for -1, e Present value = $1, $1, $1, = $4,318.67
18 $ PV = ; PV = $ c APR = ; APR = percent Enter 13.8 NOM EFF C/Y Solve for d EAR = ; EAR = percent Enter 14.9 NOM EFF C/Y Solve for 15.96
Quick Quiz: Part 2 You know the payment amount for a loan and you want to know how much was borrowed. Do you compute a present value or a future value? You want to receive $5,000 per month in retirement.
Discounted Cash Flow Valuation Chapter 5 Key Concepts and Skills Be able to compute the future value of multiple cash flows Be able to compute the present value of multiple cash flows Be able to compute
CHAPTER 5 INTRODUCTION TO VALUATION: THE TIME VALUE OF MONEY 1. The simple interest per year is: $5,000.08 = $400 So after 10 years you will have: $400 10 = $4,000 in interest. The total balance will be
6 Calculators Discounted Cash Flow Valuation Key Concepts and Skills Be able to compute the future value of multiple cash flows Be able to compute the present value of multiple cash flows Be able to compute
CHAPTER 4 DISCOUNTED CASH FLOW VALUATION Solutions to Questions and Problems NOTE: All-end-of chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability
Chapter 5 DISCOUNTED CASH FLOW VALUATION and MULTIPLE CASH FLOWS The basic PV and FV techniques can be extended to handle any number of cash flows. PV with multiple cash flows: Suppose you need $500 one
International Financial Strategies 1 Future Value and Compounding Future value = cash value of the investment at some point in the future Investing for single period: FV. Future Value PV. Present Value
6 Formulas Discounted Cash Flow Valuation McGraw-Hill/Irwin Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Outline Future and Present Values of Multiple Cash Flows Valuing
Problem Set: Annuities and Perpetuities (Solutions Below) 1. If you plan to save $300 annually for 10 years and the discount rate is 15%, what is the future value? 2. If you want to buy a boat in 6 years
CHAPTER 5 INTRODUCTION TO VALUATION: THE TIME VALUE OF MONEY Answers to Concepts Review and Critical Thinking Questions 1. The four parts are the present value (PV), the future value (FV), the discount
Chapter 2 - Sample Problems 1. If you wish to accumulate $140,000 in 13 years, how much must you deposit today in an account that pays an annual interest rate of 14%? 2. What will $247,000 grow to be in
Spring 2012 Finance 3130 Sample Exam 1A Questions for Review 1. The form of organization for a business is an important issue, as this decision has very significant effect on the income and wealth of the
MBAP 6061 Managerial Finance Exam 1 Thursday, September 30, 2010 Dr. William A. Dowling Name You are to provide answers to the following questions. 1. What advantages does the corporate form of organization
CHAPTER 6 DISCOUNTED CASH FLOW VALUATION Answers to Concepts Review and Critical Thinking Questions 1. The four pieces are the present value (PV), the periodic cash flow (C), the discount rate (r), and
Solutions Manual Corporate Finance Ross, Westerfield, and Jaffe 9 th edition 1 CHAPTER 1 INTRODUCTION TO CORPORATE FINANCE Answers to Concept Questions 1. In the corporate form of ownership, the shareholders
Business 2019 Finance I Lakehead University Midterm Exam Philippe Grégoire Fall 2002 Time allowed: 2 hours. Instructions: Calculators are permitted. One 8.5 11 inches crib sheet is allowed. Verify that
1 Simple interest 2 5. Time value of money With simple interest, the amount earned each period is always the same: i = rp o We will review some tools for discounting cash flows. where i = interest earned
Bus 300 Lemke Midterm Exam September 22, 2004 The balance sheet and income statement on the next page for questions #1 through #7: (5 pts) 1. What is the firm s operating cash flow for 2000? 623 (5 pts)
Chapter Time Value of Money Future Value Present Value Annuities Effective Annual Rate Uneven Cash Flows Growing Annuities Loan Amortization Summary and Conclusions Basic TVM Concepts Interest rate: abbreviated
1. Future Value of Multiple Cash Flows 2. Future Value of an Annuity 3. Present Value of an Annuity 4. Perpetuities 5. Other Compounding Periods 6. Effective Annual Rates (EAR) 7. Amortized Loans Chapter
CASH FLOW STATEMENT (AND FINANCIAL STATEMENT) - At the most fundamental level, firms do two different things: (i) They generate cash (ii) They spend it. Cash is generated by selling a product, an asset
The Time Value of Money Time Value Terminology 0 1 2 3 4 PV FV Future value (FV) is the amount an investment is worth after one or more periods. Present value (PV) is the current value of one or more future
FACTS KENT FAMILY FINANCES Ken and Kendra Kent have been married twelve years and have twin 4-year-old sons. Kendra earns $78,000 as a Walmart assistant manager and Ken is a stay-at-home dad. They give
Chapter 6 Key Concepts and Skills Be able to compute: the future value of multiple cash flows the present value of multiple cash flows the future and present value of annuities Discounted Cash Flow Valuation
Chapter 4 Time Value of Money ANSWERS TO END-OF-CHAPTER QUESTIONS 4-1 a. PV (present value) is the value today of a future payment, or stream of payments, discounted at the appropriate rate of interest.
Multiple Choice Questions 1. The financial statement summarizing the value of a firm's equity on a particular date is the: a. income statement. B. balance sheet. c. statement of cash flows. d. cash flow
Mathematics of Finance Interest is the rental fee charged by a lender to a business or individual for the use of money. charged is determined by Principle, rate and time Interest Formula I = Prt $100 At
Chapter Discounted Cash Flow Valuation Compounding Periods Other Than Annual Let s examine monthly compounding problems. Future Value Suppose you invest $9,000 today and get an interest rate of 9 percent
McGraw-Hill/Irwin Copyright 2014 by the McGraw-Hill Companies, Inc. All rights reserved. Key Concepts and Skills Be able to compute: The future value of an investment made today The present value of cash
Chapter 5 Time Value of Money Topics 1. Future Value of a Lump Sum 2. Present Value of a Lump Sum 3. Future Value of Cash Flow Streams 4. Present Value of Cash Flow Streams 5. Perpetuities 6. Uneven Series
Main TVM functions of a BAII Plus Financial Calculator The BAII Plus calculator can be used to perform calculations for problems involving compound interest and different types of annuities. (Note: there
Compounding Assumptions Financial Calculations on the Texas Instruments BAII Plus This is a first draft, and may contain errors. Feedback is appreciated The TI BAII Plus has built-in preset assumptions
BUAD 100x Foundations of Finance Discounted Cash Flow Valuation September 28, 2009 Review Introduction to corporate finance What is corporate finance? What is a corporation? What decision do managers make?
Chapter 02 How to Calculate Present Values Multiple Choice Questions 1. The present value of $100 expected in two years from today at a discount rate of 6% is: A. $116.64 B. $108.00 C. $100.00 D. $89.00
Chapter 4 The Time Value of Money 1 Learning Outcomes Chapter 4 Identify various types of cash flow patterns Compute the future value and the present value of different cash flow streams Compute the return
EXAM 2 OVERVIEW Binay Adhikari FEDERAL RESERVE & MARKET ACTIVITY (BS38) Definition 4.1 Discount Rate The discount rate is the periodic percentage return subtracted from the future cash flow for computing
Finance 3130 Corporate Finiance Sample Final Exam Spring 2012 True/False Indicate whether the statement is true or falsewith A for true and B for false. 1. Interest paid by a corporation is a tax deduction
1.-1.3 ime Value of Money and Discounted ash Flows ime Value of Money (VM) - the Intuition A cash flow today is worth more than a cash flow in the future since: Individuals prefer present consumption to
Chapter 6 Learning Objectives Principles Used in This Chapter 1. Annuities 2. Perpetuities 3. Complex Cash Flow Streams 1. Distinguish between an ordinary annuity and an annuity due, and calculate present
Chapter 2 Applying Time Value Concepts Chapter Overview Albert Einstein, the renowned physicist whose theories of relativity formed the theoretical base for the utilization of atomic energy, called the
Integrated Case 5-42 First National Bank Time Value of Money Analysis You have applied for a job with a local bank. As part of its evaluation process, you must take an examination on time value of money
Time Value of Money Reading 5 IFT Notes for the 2015 Level 1 CFA exam Contents 1. Introduction... 2 2. Interest Rates: Interpretation... 2 3. The Future Value of a Single Cash Flow... 4 4. The Future Value
Exercise 1 for Time Value of Money MULTIPLE CHOICE 1. Which of the following statements is CORRECT? a. A time line is not meaningful unless all cash flows occur annually. b. Time lines are useful for visualizing
Foundation review: Introduction Foundation review Introduction Throughout FN1, you will be expected to apply techniques and concepts that you learned in prerequisite courses. The purpose of this foundation
SAMPLE FACT EXAM (You must score 70% to successfully clear FACT) 1. What is the present value (PV) of $100,000 received five years from now, assuming the interest rate is 8% per year? a. $600,000.00 b.
Chapter 2 HOW TO CALCULATE PRESENT VALUES Brealey, Myers, and Allen Principles of Corporate Finance 11th Edition McGraw-Hill/Irwin Copyright 2014 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 4 Discounted Cash Flow Valuation 4B-1 Appendix 4B Using Financial Calculators This appendix is intended to help you use your Hewlett-Packard or Texas Instruments BA II Plus financial calculator
Texas Instruments BAII PLUS Calculator Tutorial to accompany Cyr, et. al. Contemporary Financial Management, 1 st Canadian Edition, 2004 Version #6, May 5, 2004 By William F. Rentz and Alfred L. Kahl Introduction
Texas Instruments BAII Plus Tutorial for Use with Fundamentals 11/e and Concise 5/e This tutorial was developed for use with Brigham and Houston s Fundamentals of Financial Management, 11/e and Concise,
Chapter 6 The Time Value of Money: Annuities and Other Topics Chapter 6 Contents Learning Objectives 1. Distinguish between an ordinary annuity and an annuity due, and calculate present and future values
CHAPTER 8 INTEREST RATES AND BOND VALUATION Answers to Concept Questions 1. No. As interest rates fluctuate, the value of a Treasury security will fluctuate. Long-term Treasury securities have substantial
The time value of money: Part II A reading prepared by Pamela Peterson Drake O U T L I E 1. Introduction 2. Annuities 3. Determining the unknown interest rate 4. Determining the number of compounding periods
Solutions to Problems: Chapter 5 P5-1. Using a time line LG 1; Basic a, b, and c d. Financial managers rely more on present value than future value because they typically make decisions before the start
Reading 5 The Time Value of Money Money has a time value because a unit of money received today is worth more than a unit of money to be received tomorrow. Interest rates can be interpreted in three ways.
Chapter The Time Value of Money PPT 9-2 Chapter 9 - Outline Time Value of Money Future Value and Present Value Annuities Time-Value-of-Money Formulas Adjusting for Non-Annual Compounding Compound Interest
CHAPTER 3 CONCEPT REVIEW QUESTIONS 1. Will a deposit made into an account paying compound interest (assuming compounding occurs once per year) yield a higher future value after one period than an equal-sized
Time Value of Money 2014 Level I Quantitative Methods IFT Notes for the CFA exam Contents 1. Introduction... 2 2. Interest Rates: Interpretation... 2 3. The Future Value of a Single Cash Flow... 4 4. The
6-1 Chapter 6 Time Value of Money Concepts 6-2 Time Value of Money Interest is the rent paid for the use of money over time. That s right! A dollar today is more valuable than a dollar to be received in
Page 1 of 23 Module 5: Interest concepts of future and present value Overview In this module, you learn about the fundamental concepts of interest and present and future values, as well as ordinary annuities
Written Exam Ticket 1 1. What is Finance? What do financial managers try to maximize, and what is their second objective? 2. How do you compare cash flows at different points in time? 3. Write the formulas
CHAPTER 2 ACCOUNTING STATEMENTS, TAXES, AND CASH FLOW Answers to Concepts Review and Critical Thinking Questions 1. True. Every asset can be converted to cash at some price. However, when we are referring
Time Value of Money (Text reference: Chapter 4) Topics Background One period case - single cash flow Multi-period case - single cash flow Multi-period case - compounding periods Multi-period case - multiple
CHAPTER 2 Time Value of Money 2-1 Time Value of Money (TVM) Time Lines Future value & Present value Rates of return Annuities & Perpetuities Uneven cash Flow Streams Amortization 2-2 Time lines 0 1 2 3
Math 120 Basic finance percent problems from prior courses (amount = % X base) 1) Given a sales tax rate of 8%, a) find the tax on an item priced at $250, b) find the total amount due (which includes both
The Time Value of Money C H A P T E R N I N E Figure 9-1 Relationship of present value and future value PPT 9-1 $1,000 present value $ 10% interest $1,464.10 future value 0 1 2 3 4 Number of periods Figure
C H 2 3, P a g e 1 CH 23 STATEMENT OF CASH FLOWS SELF-STUDY QUESTIONS (note from Dr. N: I have deleted questions for you to omit, but did not renumber the remaining questions) 1. The primary purpose of
University of Rio Grande Fall 2010 Financial Management (Fin 20403) Practice Questions for Midterm 1 Answers the questions. (Or Identify the letter of the choice that best completes the statement if there
14. Calculating Total Cash Flows. Greene Co. shows the following information on its 2008 income statement: Sales = $138,000 Costs = $71,500 Other expenses = $4,100 Depreciation expense = $10,100 Interest
2 Time-Value-of-Money and Amortization Worksheets The Time-Value-of-Money and Amortization worksheets are useful in applications where the cash flows are equal, evenly spaced, and either all inflows or
Using the Finance Menu of the TI-83/84/Plus calculators KEY To get to the FINANCE menu On the TI-83 press 2 nd x -1 On the TI-83, TI-83 Plus, TI-84, or TI-84 Plus press APPS and then select 1:FINANCE The
Time Value of Money Future value Present value Rates of return 1 If you deposit $100 in an account that pays 6% annual interest, what amount will you expect to have in the account at the end of the year.
This is Time Value of Money: Multiple Flows, chapter 7 from the book Finance for Managers (index.html) (v. 0.1). This book is licensed under a Creative Commons by-nc-sa 3.0 (http://creativecommons.org/licenses/by-nc-sa/
CHAPTER 1 Compound Interest 1. Compound Interest The simplest example of interest is a loan agreement two children might make: I will lend you a dollar, but every day you keep it, you owe me one more penny.
Solutions to Time value of money practice problems Prepared by Pamela Peterson Drake 1. What is the balance in an account at the end of 10 years if $2,500 is deposited today and the account earns 4% interest,
In following we will introduce one of the most important and powerful concepts you will learn in your study of finance; the time value of money. It is generally acknowledged that money has a time value.
Objectives: Long-Term Debt! Extend our understanding of valuation methods beyond simple present value calculations. Understand the terminology of long-term debt Par value Discount vs. Premium Mortgages!
Oklahoma State University Spears School of Business Financial Statements Slide 2 Sources of Information Annual reports (10K) & Quarterly reports (10Q) SEC EDGAR Major databases COMPUSTAT(access through
Section 4: Using a Financial Calculator Tab 1: Introduction and Objectives Introduction In this section, the functions of a financial calculator will be reviewed and some sample problems will be demonstrated.
Present Value Concepts Present value concepts are widely used by accountants in the preparation of financial statements. In fact, under International Financial Reporting Standards (IFRS), these concepts
Key Concepts and Skills Chapter 4 Introduction to Valuation: The Time Value of Money Be able to compute the future value of an investment made today Be able to compute the present value of cash to be received
CHAE Review Financial Statements, Capital Leases & Forms of Business This is a complete review of the two volume text book, Certified Hospitality Accountant Executive Study Guide, as published by The Educational
Finance 3130 Sample Exam 1B Spring 2012 True/False Indicate whether the statement is true or false. 1. A firm s income statement provides information as of a point in time, and represents how management