PV (for monthly, daily or bi-annually basis) = FV / (1+r/m)n*m FV (for monthly, daily or bi-annually basis) = PV(1+r/m)n*m

To find interest rate: FV = PV (1+r(?))n (FV and PV are given) APR (Annual Present Rate) = r * Total days in a year/given days In Excel: =RATE(n,pmt,PV)

EAR (Effective Annual Rate) OR EAY (Effective Annual Yield): EAR/EAY = [1+r/m]m – 1 (m = no. of periods)
In Excel: =EFFECT(r,n)

Continuous Compounding (to find FV) = Co * er*t
Co = initial investment
e = 2.718 (constant)
r = APR (rate of interest)
t = No. of years (periods)
Continuous Compounding (to find PV) = Co * 1/er*t

PERPETUITY
PV = C/r (C = Cash inflow)
PV of Growing Perpetuity = PV = C/r-g (r = initial rate, g = growth rate) * Initial rate is always greater than growth rate.

Perpetuity Interest Rate
Perpetuity Interest Rate

Annuity
PVA (Present value of annuity) = C[1/r – 1/r(1+r)t ]

PV Of Growing Annuity = C[(1+r)t -1/r]

FVA (Future value of annuity) = PMT/r-g[1- (1+g)n/(1+r)n]

NET PRESENT VALUE
NPV = - Cost (PV) + Benefit (PV)
* ‘-‘sign shows outflow of cash while ‘+’ sign shows inflow of cash.

Investment is profitable, if-----------------------Cost (PV) Benefit (PV) Investment is not profitable, if-------------------Cost (PV) Benefit (PV)

...The Net Present Value, Mergers and Acquisitions
Michael D. Black
Trident University
Module 5 CASE
Finance 501: Strategic CorporateFinance
Professor: Walter Witham
June 15, 2012
Net Present Value, Mergers and Acquisitions
Abstract
Financial managers must understand the value of dollars invested today in order to make decisions as to what capital ventures are worth pursuing for business growth. The money a business...

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In a 2001 Graham and Harvey survey of 392 chief financial officers (CFOs) asked “how frequently they used different capital budgeting methods?” Approximately 75% of the CFOs replied that they use net present value (NPV) or Internal Rate of Return (IRR) always or almost always (Smart, Megginson & Gitman, 2004, pg. 251). Projects are viewed as capital investments in the corporate world, and as such,...

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Posted on May 10, 2012 by Sam
CorporateFinance, Chapters 8, 9 & 10. Exam Questions:
1. A project’s opportunity cost of capital is: A. The forgone return from investing in the project.
2. Which of the following statements is correct for a project with a positive NPV? A. The IRR must be greater than 1.
3. What is the NPV of a project that costs $100,000 and returns $50,000 annually for 3...

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11.3 After examining a potential project’s NPV analysis, the manager advises that the initial fixed capital outlay be increased by $480,000. The initial fixed capital...

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Problem Set 1 Valuing Cash Flows
Problem Set 1
Valuing Cash Flows
Exercise 1 (Ex. 11.2 - 11.6 GT): Assume that Marriott’s restaurant division has the following joint distribution with the market return: Market Scenario Bad Good Great .25 .50 .25 Probability Market Return (%) -15 5 25 YR 1. Cash Flow Forecast $40 million $50 million $60 million
Assume also that the CAPM holds. 11.2 Compute the expected year 1...

...the bond. As a result, using the coupon rate could cause a large depreciation of funds.
2. Compute the cost of common equity using the CAPM model. For beta, use the average beta of three selected competitors. You may obtain the betas from Yahoo Finance. Assume the risk free rate to be 3% and the market risk premium to be 4%.
Betas from Raytheon (0.75), Lockheed Martin (0.64), and Boeing (1.11) create an average of 0.8333.
a. What is the cost of common equity? (5 pts)...

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return for debt.
2. Compute the cost of common equity using the CAPM model. For beta, use the average
beta of three selected competitors. You may obtain the betas from Yahoo Finance.
Assume the risk free rate to be 3% and the market risk premium to be 4%.
Risk free Rate 3%
Market risk premium, MRP 4%
Competitors Beta As on October 6, 2010
Dendreon Corp .65...

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1.What are the industry differences in US Corporate Governance and Japanese Corporate Governance?
JAPANIES CORPORATE GOVERNANCE US CORPORATE GOVERNANCE
Stakeholders of organiztions:
Japanies system believs in the wealth maximization of stake holders,...