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Given an interest rate, students will learn to calculate the present value of a sum to be received in the future or, alternatively, the future value of a sum invested today. The reading covers compounding and discounting, the two types of calculations used to determine the future and present value of money. It concludes with more complicated calculations drawn from real-world examples, and a brief discussion of how the formulas in the reading relate to pre-programmed Excel functions. The reading includes eight interactive illustrations: "Time Value of $100 Cash" shows the value of $100 compounded or discounted over 1-, 2-, and 3-year periods; "Calculating the Present Value of Multiple Cash Flows" is an animated presentation of present value calculations involving multiple (equal) cash flows and multiple periods; "Present or Future Value of Multiple Cash Flows" covers multiple (equal) cash flows and multiple periods, and allows students to choose whether to compute present values or future values and observe the results; "Time Value of $100 with Compounding Frequencies" allows the reader to observe the impact of varying the interest rate and compounding frequency on the present or future value of $100; "Effect of Compounding Frequency" visually illustrates the economic impact of compounding frequency on future value; "Mortgage as an Annuity" is a mortgage calculator which allows the reader to set the APR and mortgage term and see how each affects the monthly payment as well as the split between principal and interest over time; "Present Value of Perpetuities and Annuities by Term" illustrates the changing relationship between a perpetuity and annuities (which share the same annual payment stream but differ in their term lengths) as interest rates change; "Practice Questions for Time Value of Money" is a self-study tool which enables students to check their comprehension.
Develops a conceptual framework for financial analysis of real estate investments, taking into consideration the necessity for baseline data, project trends, and forecast discontinuities.
What caused the 1997-98 Asia Crisis: Asian nations' poor economic management, international financial contagion, close "crony" relations between local politicians and capitalists? This case examines how the crisis erupted in Thailand and spread in a chain of events that no one-neither Asian financial authorities nor Western economists-had foreseen. The crisis raises questions about how competently financial institutions such as mutual funds managed their global capital investments. It raises questions about how effective the International Monetary Fund's package of reforms was-and to what extent the IMF acted in the interest of Wall Street rather than developing nations. And the crisis raises questions about the development policies of Asian nations: Did too-close "crony" relations between politicians and owners of major banks or firms pave the way for crisis?
This case presents excerpts from the speeches of observers to the 2008 financial crisis, including former and current central bankers, a private banker, and a Nobel-prize winning economist. They present different interpretations of the causes of the financial crisis, and make proposals about how a similar crisis might be stopped in the future. The goal of the case is to provide students with alternative perspectives and broad historical data so that they can evaluate both causes of and responses to the crisis.
Demonstrates how the capital asset pricing model can be used to estimate the impact of financial leverage on the cost of equity capital. The levering and unlevering of betas are illustrated. Also presents a methodology for decomposing the cost of equity into its three components--the risk-free rate, a premium for business, and a premium for financial risk.
This chapter discusses how financial intelligence empowers managers to make better decisions and contribute to a business's health, and advises organizations to take the next step and support the financial training of the entire staff.
If your goal is to have a financially intelligent workplace or department, your first step should be developing a strategy for getting there. This chapter outlines three approaches that have proven effective in making financial literacy part of a company's culture.
In order to have a financially intelligent company, you must first figure out a strategy for getting there. This chapter outlines three approaches that have proven effective in making financial literacy part of a company's culture. This chapter is excerpted from "Financial Intelligence for Entrepreneurs: What You Really Need to Know About the Numbers."
Financial Literacy, Transparency, and Your Business's Performance: Why Entrepreneurs Should Bring Financial Intelligence to Workby Karen Berman Joe Knight
Financial intelligence empowers entrepreneurs to make better decisions that contribute to a business's health, and support the financial training of the entire staff. Plenty of entrepreneurs have focused on developing financial intelligence and have found that the investment of time is repaid in productivity and employee satisfaction. This chapter is excerpted from "Financial Intelligence for Entrepreneurs: What You Really Need to Know About the Numbers."
Financial objectives represent the long-term goal of the organization: to provide superior returns based on the capital invested in the unit. Building a Balanced Scorecard should encourage business units to link their financial objectives to corporate strategy. This chapter looks at the dual role financial objectives and measures must play, defining the financial performance expected from the strategy, and serving as the ultimate targets for the objectives and measures of all the other scorecard perspectives. This chapter was originally published as chapter 3 of "The Balanced Scorecard: Translating Strategy into Action."
By the end of 2013, Apple had $137 billion dollars in cash and marketable securities. This case explores how companies can generate such large amounts of cash and how and if they should distribute it to shareholders, especially in the face of shareholder pressure. In the process, students are asked to undertake fundamental financial analyses, including ratio analysis, a financial forecast, and a cash distribution analysis.
This case is meant to accompany Financial Policy at Apple, 2013 (A) and details the results of Apple's Q2 2013 earnings call.
Provides a framework for understanding the role of financial reporting and various intermediaries as mechanisms for reducing both adverse selection and moral hazard problems in capital markets. Financial reports reduce adverse selection by providing basic information for investors and their agents before they make initial capital resource allocation decisions. Subsequently, after capital is allocated to particular business ventures, financial reports reduce moral hazard between managers and investors by supplying information used in contracting between investors and managers to reduce conflicts of interests. Various institutional mechanisms and information intermediaries monitor and limit the manipulation of reported information by managers and constrain managers' ability to act in their own self-interest, rather than investors' interests. They also improve information production, reduce incentive conflicts, and enable capital markets to function effectively and efficiently, channeling the economy's savings to the most productive opportunities.
Following an accounting problem at Molex, the firm's auditors request changes in management. The board of directors has to decide whether the auditors' concerns have merit or whether, as management argues, the accounting issue is immaterial.
Introduces the latest techniques advocated for measuring financial market risk and portfolio optimization, and provides a plethora of R code examples that enable the reader to replicate the results featured throughout the book.Financial Risk Modelling and Portfolio Optimization with R:Demonstrates techniques in modelling financial risks and applying portfolio optimization techniques as well as recent advances in the field.Introduces stylized facts, loss function and risk measures, conditional and unconditional modelling of risk; extreme value theory, generalized hyperbolic distribution, volatility modelling and concepts for capturing dependencies.Explores portfolio risk concepts and optimization with risk constraints.Enables the reader to replicate the results in the book using R code.Is accompanied by a supporting website featuring examples and case studies in R.Graduate and postgraduate students in finance, economics, risk management as well as practitioners in finance and portfolio optimization will find this book beneficial. It also serves well as an accompanying text in computer-lab classes and is therefore suitable for self-study.
Prepares students for financial ratio analysis.
Financial statements are the essential documents of business. This chapter helps you understand the three essential financial statements: the balance sheet, the income statement, and the cash flow statement. The chapter also elucidates some of the managerial issues implicit in using these statements and broadens your financial know-how through a discussion of two key concepts: financial leverage and the financial structure of the firm.
In this chapter, the authors discuss what an organization might gain by fostering a culture of true financial transparency and intelligence.
This is a follow-up case to "Curtis LLP: A Case on Cases." It explores the challenges facing debtors when dealing with borrowing firms that have operational flexibility.
Aid in understanding of financing entrepreneurship.
Companies that are experiencing growth face the challenge of finding the financing to support it. This chapter describes various combinations of internally generated funds and external financing. Using eBay as a case study, the chapter examines these methods of financing growth through different phases in the life cycle of business enterprises.
PPL Corp., an electric utility in Pennsylvania, needs to finance $1 billion of peaking plants as part of its new growth strategy. In February 2001, Steve May, director of finance for PPL's Global Division, is responsible for recommending a finance plan. After considering all the options, May decides that a synthetic lease is the best option, but he must decide whether to recommend a traditional or a limited recourse synthetic lease and how to structure the specific terms. The limited synthetic lease, in contrast to the traditional structure, requires a smaller corporate guarantee on the assets and has greater off-credit treatment, which is important given the company's growth strategy and limited debt capacity. However, finding investors willing to accept greater project risk will cost more and take more time. Timing is an issue for May because if he doesn't close the financing within the next two months, PPL will lose a valuable option to buy turbines for its peaking plants. Failure to exercise the option could delay the company's construction schedule, something PPL wants to avoid given the nationwide race to build new generating plants.