TIME VALUE OF MONEY FORMULA SHEET # TVM Formula For: 1 Future Value of a Lump Sum. (FVIFi‚n) Compounded/Payments (m) Times per Year Annual Compounding FVn = PV( 1 + i )n 2 FV 1 i PV = Present Value of a Lump Sum. (PVIFi‚n) -n Future Value of an Annuity. (FVIFAi‚n) FVAn = CF 4 Present Value of an Annuity. (PVIFAi‚n) 1 - ( 1 + i )-n PVAn = CF i 5 Present Value of Perpetuity. (PVA ) 6 Effective Annual Rate given the APR. 7
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Review of Capital Budgeting 1. The Kramer Tool Company has a photocopying machine that it purchased two years ago for $70‚000. The machine is being depreciated straight line over 5 years to a zero salvage value. A competing firm is offering a new photocopying machine that cost $60‚000 and can be depreciated over 5 years to a zero salvage value. Kramer has been assured that the new machine can be sold for $10‚000 after five years. The new machine requires less maintenance and operator attendance
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Cost of Capital Definition: cost of capital is the rate of return that a company must earn on its project investments to maintain its market value and attract funds. The cost of capital to a company is the minimum rate of return that is must earn on its investments in order to satisfy the various categories of investors‚ who have made investments in the form of shares ‚ debentures and loans. The cost of capital in operational terms refers to the discount rate that would be used in determining the
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Outcome:- On completion of this unit‚ a student shall be able to: Explain the role of capital budgeting techniques in the capital budgeting process. Calculate‚ interpret and evaluate payback period‚ net present value‚ profitability index and internal rate of return. 9-1 What are the most commonly used capital budgeting procedures? Why is capital-budgeting decision so important? Why are capital-budgeting errors so costly? 9-2 The treasurer of Anthony Press. has projected the cash flows of
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Corporate Finance: The Core (Berk/DeMarzo) Chapter 7 - Fundamentals of Capital Budgeting 1) Which of the following statements is false? A) Because value is lost when a resource is used by another project‚ we should include the opportunity cost as an incremental cost of the project. B) Sunk costs are incremental with respect to the current decision regarding the project and should be included in its analysis. C) Overhead expenses are associated with activities that are not directly attributable to a single business
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we will explain capital structure and determine weighted average cost of capital (WACC) from the assumption provided by Mary Francis. Furthermore‚ we will show how WACC and Capital Structure can be leveraged to find out the viability of the capital project. Additionally‚ we will explain marginal cost of capital. To close‚ we will make a recommendation on the best approach to apply to project evaluation between capital structure and WACC Capital Structure Capital Structure refers to the sources
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Strategies Group January 2006 Corporate Capital Structure Authors Henri Servaes Professor of Finance London Business School The Theory and Practice of Corporate Capital Structure Peter Tufano Sylvan C. Coleman Professor of Financial Management Harvard Business School Editors James Ballingall Capital Structure and Risk Management Advisory Deutsche Bank +44 20 7547 6738 james.ballingall@db.com Adrian Crockett Head of Capital Structure and Risk Management Advisory‚ Europe & Asia
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Finance managers‚ students‚ or anyone involved in the study of business and finance should have proper background and knowledge of the concepts of time value of money (TVM) in order to apply them correctly. Hence‚ the author of the abstract‚ Norman Gardner; suggest that these concepts be clarified and simplified in teaching in order for the students to understand these concepts better. Because these concepts are to be employed by financial managers in a competent manner‚ they should have a clear
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importance of capital budgeting cannot be exaggerated. Some of the reasons for this importance are mentioned below: • Capital budgeting involves a greater amount of risk on account of unforeseen situations. Capital is generally invested with the expectation of future benefits which are likely to accrue over a long period of time. Therefore‚ a right decision has to be taken to ensure a favorable impact on the profitability and competitive position of the firm. • Capital budgeting decisions are
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Cost Benefit Analysis A cost benefit analysis is important because it can help us decide what would be the total expenditure on a particular project along with the expected returns from the project. From a cost benefit analysis‚ it is easy to decide whether implementing the project will be a profitable deal for the organization or not. It is through the examples of this process that we can get a clear idea of how to proceed with this calculation. Definition As said above‚ a cost benefit
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