annum. When you retire after 40 years‚ you want to receive a pension equal to 50% of your final salary and payable for 20 years. Your earnings are assumed to grow at 2% annually‚ and you want the pension payments to grow at the same rate. 2.1 Time Value of Money It is a fact of life that $100 to be received after one year is worth less than the same amount today. The main reason is that money due in the future or locked in a fixed-term account cannot be spent right away. One would therefore expect
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CHAPTER 6 Accounting and the Time Value of Money CHAPTER REVIEW 1. (L.O. 1) Chapter 6 discusses the essentials of compound interest‚ annuities and present value. These techniques are being used in many areas of financial reporting where the relative values of cash inflows and outflows are measured and analyzed. The material presented in Chapter 6 will provide a sufficient background for application of these techniques to topics presented in subsequent chapters. 2. Compound interest
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9. Time‑value of money is based on the belief that a dollar that will be received at some future date is worth more than a dollar today. FALSE 10. Future value is the value of a future amount at the present time‚ found by applying compound interest over a specified period of time. True?? 11. Interest earned on a given deposit that has become part of the principal at the end of a specified period is called compound interest. TRUE 12. The future value interest factor is
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including yield to maturity‚ holding period or realized yield‚ and expected yields with simulated future values. 4. The concept of interest rate risk is developed‚ including bond volatility concepts‚ price risk‚ and reinvestment risk. A bond volatility measure for price risk is developed. 5. The reader will study duration concepts as a measure of a) bond volatility and b) a holding time period sufficient to balance price and reinvestment risk assuring the investor the yield to maturity. CHANGES
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Course Road Map I. Present Value and Stock Valuation II. Project Appraisal and Capital Budgeting III. Risk and Return and Portfolio Selection IV. CAPM and WACC V. Capital Structure and Dividend Policy VI. Options and Real Options Principles of Finance Present Value - Page 2 Present Value - Contents • Valuing Cash Flows – The Time Value of Money – Future Value – Present Value – Value Additivity • Project Evaluation – Net Present Value – The Net Present Value Rule • Shortcuts to Special
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Probability theory is applied to situations where uncertainty exists. These situations include 1. The characterization of traffic at the intersection US 460 and Peppers Ferry Road (i.e.‚ the number of cars that cross the intersection as a function of time) 2. The prediction of the weather in Blacksburg 3. The number of students traversing the Drill Field between 8:50 and 9:00 on Mondays 4. The thermally induced (Brownian) motion of molecules in a (a) copper wire (b) a JFET amplifier 3)
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* strategic financial decisions * Spending money: how the money is spent * financial investment projects * capital budgeting * Raising money: how to raise money * Investments that increase the firm value * How should the firm pay for those investments * Debt vs Equity? * Balance sheet * Assets * Current assets * Long-term assets * Debt
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rational people prefer to receive benefits sooner than later and make sacrifices later than sooner‚ money‚ which provides the option to buy benefits‚ is likewise preferred sooner to later. If an individual prefers money sooner than later‚ then he/she values a dollar today more than a dollar tomorrow or a dollar in one year from now. A dollar today is worth a dollar today: therefore‚ a dollar next year must be worth less than a dollar today since it is less preferable/valuable. In other words‚ the
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Pensacola Surgery Center Time Value Analysis A Case Study in Healthcare Finance Catherine Grace Bautista 1. Consider the $50‚000 excess cash. Assume that Gary invests the funds in one-year CD. a. What is the CD’s value at maturity (future value) if it pays 10 percent annual interest? FV = PV x (1+i)n FV = 50‚000 x (1+10%)1 FV = 50‚000 x 1.10 FV = $55‚000 at maturity after a year b. What will its future value be if the CD pays 5 percent interest? If it pays 15 percent interest? @ 5% per annum
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TIME VALUE OF MONEY Time value of money refers to an individual preference of a given amount of cash now rather than the same amount at some future time. The reasons why an individual would prefer cash now: i) Subjective preference for present consumption – one may prefer present consumption over future consumption of goods and services because of the urgency of present wants or the risk of not being in a position to enjoy future consumption. ii) Availability of investment opportunities –
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