Ch4 TVM

Question 1

WACC

Answer 1

weight average cost of capital

Question 2

WACC is the average ___ on required by all the firm’s ___.

Answer 2

rate of return investors

Question 3

FCF is net profit after ___.

Answer 3

required investments in operating capital

Question 4

FCF

Answer 4

free cash flow

Question 5

timing of cash flows affects: ___ values and ___ of return.

Answer 5

asset values rate of return

Question 6

TVM is also called DCF

Answer 6

time value of money discounted cash flow analysis

Question 7

PV

Answer 7

present value

Question 8

FV(N)

Answer 8

future value after N periods

Question 9

CF(t)

Answer 9

Cash flow. Cash flows can be positive or negative.

Question 10

I

Answer 10

interest rate earned per year

Question 11

i is the same as r

Answer 11

interest rate of return

Question 12

INT

Answer 12

dollar of interest per year.

Question 13

N

Answer 13

number of periods

Question 14

FV=

Answer 14

FV=PV(1+1)n

Question 15

FV=

Answer 15

FV=PV(1+1)eN

Question 16

five variable for TMV

Answer 16

N, I/YR, PV, PMT, FV Number of periods Interest rate Present value (+/-) Payment Future Value (-/+) TMV calculators assume that either PV or FV must be negative. If we do a deposit it is negative because this is an outflow.

Question 17

the formula

Question 18

formaula try with attach images

Answer 18

Question 19

When must you use a positive value and when
must you use a negative value?

Answer 19

The answer is that whenever you set up a time line and use either a financial calculator’s time value functions or Excel’s time value functions, you must enter the signs that correspond to the“direction”of the cash flows. Cash flows that go out of your pocket (outflows) are negative, but cash flows that come into your pocket (inflows) are positive.

Question 20

What is the first step in setting up a TVM problem?

Answer 20

The first step in solving any time value problem is to understand what is happening and
then to diagram it on a time line.

Question 21

What is the secon step of TVM?

Answer 21

to pick one of the four
approaches shown in Figure 4-1 to solve the problem.

Brigham, Eugene F.; Ehrhardt, Michael C. (2013-01-28). Financial Management: Theory & Practice (Finance Titles in the Brigham Family) (Page 141). Cengage Textbook. Kindle Edition.

Question 22

TVM business formula

Answer 22

All business students should know Equation 4-1 by heart and should also know how to
use a financial calculator.

Brigham, Eugene F.; Ehrhardt, Michael C. (2013-01-28). Financial Management: Theory & Practice (Finance Titles in the Brigham Family) (Page 141). Cengage Textbook. Kindle Edition.

Question 23

coumpund interest

Answer 23

when interest is earned on the interest earned in prior periods, we call it
compound interest.

Brigham, Eugene F.; Ehrhardt, Michael C. (2013-01-28). Financial Management: Theory & Practice (Finance Titles in the Brigham Family) (Page 143). Cengage Textbook. Kindle Edition.

Question 24

simple interest

Answer 24

interest. If interest is earned only on the principal, we call it simple interest.

Brigham, Eugene F.; Ehrhardt, Michael C. (2013-01-28). Financial Management: Theory & Practice (Finance Titles in the Brigham Family) (Page 143). Cengage Textbook. Kindle Edition.

Question 25

describe simple interest

Answer 25

The total interest earned with simple interest is equal to the principal multiplied by the interest rate times the number of periods: PV(I)(N). The future value is equal to the principal plus the interest: FV = PV + PV(I)(N).

For example, suppose you deposit $100 for 3 years and earn simple interest at an annual rate of 5%. Your balance at the end of 3 years would be:

Question 26

opporunity cost

Answer 26

opportunity cost, or the rate of return you would
earn on an alternative investment of similar risk if you don’t invest in the security under
consideration.

Brigham, Eugene F.; Ehrhardt, Michael C. (2013-01-28). Financial Management: Theory & Practice (Finance Titles in the Brigham Family) (Page 143). Cengage Textbook. Kindle Edition.

Question 27

discounting

Answer 27

Finding present values is called discounting, and as previously noted, it is the reverse of
compounding:

Brigham, Eugene F.; Ehrhardt, Michael C. (2013-01-28). Financial Management: Theory & Practice (Finance Titles in the Brigham Family) (Page 144). Cengage Textbook. Kindle Edition.

Question 28

copare FV and PV

Answer 28

Question 29

what excel fuction finds I if you no PV and FV?

Answer 29

RATE

Question 30

What fx finds the number of years

Answer 30

NPER

Question 31

perpetuity

Answer 31

called“consols.”The term
stuck, and now any bond that promises to pay interest perpetually is called a consol,
or a perpetuity.

Brigham, Eugene F.; Ehrhardt, Michael C. (2013-01-28). Financial Management: Theory & Practice (Finance Titles in the Brigham Family) (Page 149). Cengage Textbook. Kindle Edition.

Question 32

perpetuity/consol

Answer 32

A consol, or perpetuity, is simply an annuity whose promised payments extend out
forever.

Brigham, Eugene F.; Ehrhardt, Michael C. (2013-01-28). Financial Management: Theory & Practice (Finance Titles in the Brigham Family) (Page 149). Cengage Textbook. Kindle Edition.

Question 33

formula for perpetuity

Answer 33

Question 34

annuities

Answer 34

payments. If the payments are equal and
are made at fixed intervals, then we have an annuity. For example, $100 paid at the end of
each of the next 3 years is a 3-year annuity.

Brigham, Eugene F.; Ehrhardt, Michael C. (2013-01-28). Financial Management: Theory & Practice (Finance Titles in the Brigham Family) (Page 150). Cengage Textbook. Kindle Edition.

Question 35

type in FV fx

Answer 35

Type Optional. The number 0 or 1 and indicates when payments are due. If type is omitted, it is assumed to be 0.

Set type equal to

If payments are due

0

At the end of the period

1

At the beginning of the period

Question 36

what is the difference between annuity and annuity due

Answer 36

type is 1 for annuity due

Question 37

if time is asked, formula is:

Answer 37

NPER

Question 38

if interest or rate of return is asked, Fx is:

Answer 38

RATE

Question 39

There are two important classes of uneven cash flows: (1) those in which the cash
flow stream consists of a series of annuity payments plus an additional final lump sum
in Year N, and (2) all other uneven streams. Bonds are an instance of the first type,
while stocks and capital investments illustrate the second type.

Brigham, Eugene F.; Ehrhardt, Michael C. (2013-01-28). Financial Management: Theory & Practice (Finance Titles in the Brigham Family) (Page 160). Cengage Textbook. Kindle Edition.

Question 40

The future value of an uneven cash flow stream (sometimes called the terminal, or
horizon, value) is found by compounding each payment to the end of the stream and
then summing the future values:

Brigham, Eugene F.; Ehrhardt, Michael C. (2013-01-28). Financial Management: Theory & Practice (Finance Titles in the Brigham Family) (Page 163). Cengage Textbook. Kindle Edition.