FIN 442 Central Texas College Financial Management Summary and Questions

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Business Finance

FIN 442

Central Texas College

FIN

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Weekly summary Weekly Summaries Submit a Weekly Summary of topics learned, objectives achieved and a conclusion as to the practical relevance of the subject material covered. The Weekly Summary should include the following "Five Points" and run about 1-2 pages. You are expected to use this "Five Points" as "Topic Headings (same Chapter Titles, see numbers 1-6)" and include a Title and ReferencePage (you can use your Textbook), with your Summary: General Format (Five Points to be addressed in your Weekly Summary in APA 7.0 format): 1.What are the most important concepts you have learned from this course? 2.What would you recommend to your management/leadership based on these concepts? a.(e.g., change of direction, new systems, re-engineering). Think of this from the perspective perspective that you are the senior executive in the organization with the authority to impact change. 3.How will these concepts impact you personally and professionally? 4.What is the value-added from these concepts or what difference can these concepts make to your organization? (e.g., financial savings, productivity improvements, expanded marketing activities) 5.Personal notes and observations on your individual progress in the course work. 6.Follow this same format every week. EXCEL FINANCIAL FORMULA EXAMPLES - 15 Example #1: NET PRESENT VALUE Discount Rate: 12% Year 0 -65 Year 1 10 Year 2 20 Year 3 40 Year 4 65 Year 5 -20 ANSWER: NPV (cash flows occur at the BEGINNING of each period) $18.30 For the NPV example, you don't include the year 0 cash flow of $65 (cell B2) inside the parenthesis because the payments occur at the BEGINNING of the first period. So the answer is $18.30. Example #2 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 ANSWER INTERNAL RATE OF RETURN (IRR) -65 10 20 40 65 -20 22.41% Example #3 (Note: Use the yearly data from Example #2) MODIFIED INTERNAL RATE OF RETURN (MIRR) 12% 15% 18.12% Example #4 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 ANSWER PRESENT VALUE Example #5 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 ANSWER FUTURE VALUE 12% 5 100 Finance Rate Reinvestment Rate (Discount $100 back 5 years at a 12% discount rate) Discount Rate: # Periods (or years) being discounted: FV $56.74 12% 5 100 (Compound $100 up 5 years at a 12% discount rate) Discount Rate: # Periods (or years) being compounded: PV $176.23 Example #6 Present Value = Future Value = Discount Rate = ANSWER Finding N (Nper) Number of Periods (or Years) $50 $100 12% 6.12 Present Value = Future Value = Discount Rate = ANSWER $100 $25 12% -12.23 Example #7 Present Value = Future Value = N (Nper) ANSWER Finding I (Interest Rate) $100 $200 5 14.87% Payment (PMT) Future Value = N (Nper) ANSWER $100 $750 5 20.40% Example #8 Present Value = Future Value = N (Nper) Interest Rate ANSWER Finding the Payment amount (PMT) or Annuity amount $0 $100,000 20 12% $1,387.88 How long would it take to compound $50 up to $100 using a 12% discount rate? (Or 6.12 years. Note that you have to make either the FV or PV input negative for the formula to work) How long would it take to discount $100 down to $25 using a 12% discount rate? Example #9 (Or 12.23 years. Note that years can not be negative. You have to make either the FV or PV input negative for the formula to work) If you start with $100 and end with $200 after 5 years, what was the annual interest rate earned? (or 14.87%. You must keep either the Present Value number or Future Value number negative.) If you receive payments of $100 each year for 5 years and end up with $750 after 5 years, what was the annual interest rate earned? (or 20.40%. Note that the Payment input or Future Value input must be negative for the formula to work) What would have to be the annual payment amount (or annuity amount) to have $100,000 after 20 years with a 12% discount rate? (Note: you want the FV input to be negative so your answer comes out positive.) SUM, AVERAGE, VARIANCE, STANDARD DEVIATION & CORRELATION 0.12 0.15 0.08 0.06 0.08 0.4900 0.0980 0.0013 0.0363 0.3928 SUM AVERAGE VARIANCE STANDARD DEVIATION CORRELATION Example #10 Suppose we have a bond with 22 years to maturity, a coupon rate of 8 percent, and a yield to maturity of 9 percent. If the bond makes semiannual payments, what is its price today? Settlement Maturity Rate YTM Redemption Frequency Basis Bond price (% of par): Multiply by 10 0.09 0.11 0.15 0.03 -0.12 Calculating a Bonds Price 1/1/00 1/1/22 0.08 0.09 100 2 0 90.49 904.91 (Think of Settlement as the beginning of the duration of the bond) (Think of Maturity as the end of the duration of the bond) (Coupon Rate) (Yield to Maturity or Required Rate fo Return) (Bonds Face Value, Par Value, or Fair Price; Note that is is $100, not $1,000. You make the adjustments by multiplying the answer by 10.) (Coupon payments are semiannul, so you put in a 2) (Always leave it blank) (The answer. But you need to multiply it by 10 to get the actual bond price.) (Microsoft gives the bond price in 2 digits like in cell B14. You need to multiply it by 10 to get the actual bond price) (ANSWER = 904.91) Example #11 Calculating a Bonds Yield to Maturity Suppose we have a bond with 22 years to maturity, a coupon rate of 8 percent and a price of $960.17. If the bond make semiannual payments, what is its yield to maturity? Settlement Maturity Rate Pr Redemption Frequency Basis: Yield to Maturity: 1/1/00 1/1/22 0.08 96.017 100 2 0 8.40% (Think of Settlement as the beginning of the duration of the bond) (Think of Maturity as the end of the duration of the bond) (Coupon Rate) (The bonds price per $100 face value) (Bonds Face Value, Par Value, or Fair Price; Note that is is $100, not $1,000. You make the adjustments by multiplying the answer by 10.) (Coupon payments are semiannul, so you put in a 2) (Always leave it blank) (ANSWER = 8.40%) Example #12 Calculating the Effective Annual Interest Rate Supose you have a Nominal Interest Rate of 5.25% that is compounded quarterly (4 times) during the year. What is the Effective Annual Interest Rate? Nominal Interest Rate: Npery (Number of compounding periods per year) Effective Annual Interest Rate: 5.25% 4 5.3543% (ANSWER = 5.35%) (Note: The EAR is always higher than the Nominal Rate as long as there is more than 1 compounding period per year. If you increase the compounding periods per year, the Effective Annual Rate will increase, but at a decreasing rate). Example #13 Calculating the Annual Nominal Interest Rate Supose you have an Effective Annual Interest Rate of 5.35% that is compounded quarterly (4 times) during the year. What is the Nominal Annual Interest Rate? Effective Annual Interest Rate: Npery (Number of compounding periods per year) Nominal Annual Interest Rate: 5.35% 4 5.2459% Example #14 Calculating the Interest Rate per period of a loan or an investment If you make monthly payments of 200 on an $8000 loan over 4 years, what is the Annual Interest Rate of the loan? 4 Years of the Loan -200 Monthly Payment 8000 Amount of the loan Monthly Interest Rate of the Loan 0.77% Annual Interest Rate of the Loan 9.24% Note: Multiply the years of the loan by 12 months for the monthly rate Note: Multiply the Monthly Interest Rate by 12 to get the annual rate. (ANSWER = 5.25%) (ANSWER = .77%) (ANSWER = 9.24%) EXAMPLE #15: CALCULATING THE GEOMETRIC AVERAGE RETURN (OR MEAN) A stock has produced returns of 14.6 percent, 5.3 percent, 17.6 percent, and -4.7 percent over the past four years, respectively. What is the geometric average return? Year 1 1.146 Add 1 to all positive returns Year 2 1.053 Add 1 to all positive returns Year 3 1.176 Add 1 to all positive returns 0.953 For negative returns, subtract it from 1. You have to do this to keep all data positive. 7.84% (ANSWER = 7.84%; Note: Place a minus 1 after the formula to get rid of the whole number) HW wk 4 Instructions • Please refer to the "Assignments - Use of Excel" resource under the General Course Content tab for more guidelines on the MANDATORY use of Excel • Complete the PROBLEMS: (Details mandatory for full credit!) o Chapter 12: Problems: C12P1 o Chapter 13: Problems: C13P1P2 • Complete in Excel
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Explanation & Answer

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Weekly summary
Student’s Name
Instructor’s Name
Course
Date

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1. What are the most important concepts you have learned from this course?
The essential concepts I have learned from this course include the different appraisal
techniques companies can use to value projects. I find this concept necessary since it is
applicable in a professional and organizational context. From the course content, I understood
the difference between IRR and NPV. Furthermore, I understood the reason behind NPV being
better than IRR when evaluating alternative projects in an organization. Also, I managed to learn
the concept of incremental cash flow and the importance of using it in organizations.
2. What would you recommend to your management/leadership based on these
concepts? a. (e.g., change of direction, new systems, re-engineering). Think of
this from the perspective perspective that you are the senior executive in the
organization with the authority to impact change.
I would recommend that my leaders should make changes to the project evaluation
processes. Eva...


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