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To confirm that the number of payments is correct, we look at the FV of the amount paid into the annuity in year 9. N in this case is 9; as mentioned, this is an ordinary annuity, which means that payments are made at the end of the time period. Therefore, the payment made at the end of year 9 receives interest for only one period. Substituting again into the FV formula 4a, we have F V = P V × (1 + I) N . Substituting into the equation, we have the following: Let us now use Excel to calculate the FV of an ordinary annuity using the same values as before (see Exhibit 4.12). Here is a step-by-step Excel approach to finding the FVA N : • Enter the following values into cells C4, C5, and C6, respectively: C4 = -$500 C5 = 7% C6 = 10 • Now enter the “=” sign into cell C8. • Now select “FV” from the functions box (may require you to use the drop-down menu to find FV). • Now enter the Rate value (select cell C5). • Now enter the Nper value (select cell C6). • Now enter the Pmt value (select cell C4). • Skip or enter a “0” for PV. • Skip or enter a “0” for Type. • Now select “OK” in the function argument box. Exhibit 4.12 Finding the future value of an ordinary annuity: Excel example 6.
The FV of this ordinary annuity is $6,908.22. We will use Excel to verify the future value of the $500 that was deposited into the annuity at the end of period 1. (See Exhibit 4.13.) As stated in Exhibit 4.11, this payment had a value of $919 at the end of the annuity. To determine the value of this individual payment: • Enter the following values into cells C4, C5, and C6, respectively. C4 = -$500 C5 = 7% C6 = 9 (The payment is made at the end of the period; therefore, the value of N = 9.) • Now enter the “=” sign into cell C8. • Now select “FV” from the functions box. • Now enter the Rate value (select cell C5). • Now enter the Nper value (select cell C6). • Skip or enter a “0” for Pmt (we are only interested in the FV of a single payment). • Now enter the PV value (select cell C4). • Skip or enter a “0” for Type. • Now select “OK” in the function argument box. Exhibit 4.13 Finding the future value of the first payment in an ordinary annuity: Excel example 7.
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Table of Contents Title Page Copyri
Page 3 and 4:
Chapter 6 - Planning Capital Expend
Page 5 and 6:
For Further Reading Part IV - Manag
Page 7 and 8:
Successful Postmerger Implementatio
Page 10 and 11:
This book is printed on acid-free p
Page 12 and 13:
Syllabus How Chapter Topics in This
Page 14 and 15:
Some of these experts are full-time
Page 16 and 17:
About the Contributors Richard T. B
Page 18 and 19:
Advances in Quantitative Analysis o
Page 20 and 21:
enterprise development. Dr. Zachara
Page 22 and 23:
The left side shows Nutrimin‟s in
Page 24 and 25:
Gail, let‟s go over this balance
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Gail, do you have any questions abo
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11. Not all expenses are cash outfl
Page 30 and 31:
Financial Statements: Who Uses Them
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profitability to keep investing for
Page 34 and 35:
Financial Accounting Standards It i
Page 36 and 37:
Downloadable Resources for this cha
Page 38 and 39:
Next, we explain each of these thre
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liquidity. Or, more simply, achievi
Page 42 and 43:
If these ratios are seriously defic
Page 44 and 45:
The debt-to-equity ratio is evaluat
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year 1 to year 3. The net effect wa
Page 48 and 49:
to rate of return on the equity. Th
Page 50 and 51:
Other types of comparisons of finan
Page 52 and 53:
income/sales), asset turnover (sale
Page 54 and 55:
successful businesspeople should ha
Page 58 and 59:
More than a decade ago, a special c
Page 60 and 61:
companies is used for illustration.
Page 62 and 63:
The identification of nonrecurring
Page 64 and 65:
The Dow Chemical single-step income
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is a pretax measure, but income fro
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Sources: Companies‟ annual report
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Exhibit 3.11 Examples of discontinu
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amortization purposes, the Company
Page 74 and 75:
Examples of nonrecurring items disc
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During Fiscal 2006, inventory quant
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The nonrecurring items of Boston Sc
Page 80 and 81: The disclosure presented earlier in
Page 82 and 83: gains or losses that appear as part
Page 84 and 85: ecurring as for Kimberly-Clark, the
Page 86: Summarizing Nonrecurring Items and
Page 89 and 90: This example of using the SEB works
Page 92 and 93: Exhibit 3.27 Other income (expense)
Page 97 and 98: Source: Pfizer, Inc., annual report
Page 99 and 100: Exhibit 3.30 Acquisitions note: Pfi
Page 101 and 102: Source: Pfizer, Inc., annual report
Page 103 and 104: Exhibit 3.33 Cost-reduction initiat
Page 105 and 106: Exhibit 3.36 Share-based payment no
Page 107: The Pfizer Worksheet Analysis: Down
Page 110 and 111: Some Further Points on the Pfizer W
Page 112 and 113: • It is common to treat items as
Page 114 and 115: FedEx Corporation (2007) First Sola
Page 116 and 117: 1 The American Institute of Certifi
Page 118 and 119: 28 These alternative translation me
Page 120 and 121: If you need some instruction in Exc
Page 122 and 123: To solve using Excel, open your Exc
Page 124 and 125: As you can see from the previous ex
Page 126 and 127: C6 = 5 • Now enter the “=” si
Page 128 and 129: Ordinary Annuity An ordinary annuit
Page 132 and 133: The FV of this first payment into t
Page 134 and 135: Exhibit 4.15 Finding the future val
Page 136 and 137: Exhibit 4.18 Finding the present va
Page 138 and 139: From Exhibit 4.20, we see that as t
Page 140 and 141: Exhibit 4.22 Amortization schedule
Page 142 and 143: Exhibit 4.25 Regular cash flows wit
Page 144: Internet Links For Further Reading
Page 148 and 149: Investors who are risk averse will
Page 150 and 151: considering the risk of a single as
Page 152 and 153: Portfolio Risk Stand-alone risk is
Page 154 and 155: In spite of unique or diversifiable
Page 156 and 157: If a particular stock is highly sus
Page 158 and 159: The formula tells us that, to begin
Page 160 and 161: for the entire market of stocks sin
Page 162 and 163: The dividend per share for preferre
Page 164 and 165: If you are able to determine the cu
Page 166 and 167: Debt finance is the lower-cost meth
Page 168 and 169: We don‟t observe many firms whose
Page 170 and 171: Capital Structure in Practice Finan
Page 172 and 173: are able to observe regularities in
Page 174 and 175: dividends and capital gains. We wil
Page 176 and 177: where EBIT is earnings before inter
Page 178 and 179: Since long-term debt holders have a
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accept more investment projects. Re
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A beer company is considering build
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accounts receivable, and tabulates
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profit by the tax rate determines t
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Accounting profit often mixes varia
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The concept that future cash flows
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Like project A, project C also cost
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The after-tax interest rate is the
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equal mix of debt and equity, its d
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The payback period rule stipulates
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The IRR rule is appealing in that i
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complete with its real options is g
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What does it matter that one invest
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Exhibit 7.3 Time line in dollars an
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There are a number of countries in
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eturn of 10% on its investments in
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Exhibit 7.12 Summary of exchange ra
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and so will the value of the liabil
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Source: CIA, World Factbook, availa
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Exhibit 7.18 Net present value of c
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equired interest payments to be pai
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So if the assistant treasurer was r
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This theory is far from perfect, as
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The Consulting Firm Jennifer, Jean,
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part by a statute, the Uniform Limi
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formation in Delaware (or any state
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purpose of requiring qualification.
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Phil‟s death may terminate the bu
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the transfer. This means that if Br
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These rules extend to tort liabilit
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In the absence of a meeting, stockh
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A more detailed discussion on the b
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Partnerships If possible, the resul
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associated with this arrangement ar
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Partnerships are also not separate
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For most start-up businesses, howev
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form, even at the risk of some unli
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likely that our consultants will be
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Thus, the corporation and LLC, with
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It is not possible to fully describ
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usiness corporation for all purpose
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a cash-basis taxpayer to be taxed a
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The Tax Reform Act of 1986 substant
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limit is the product of the value o
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he would have spent anyway. In fact
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protect Brad from the scenario of h
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paying for the privilege. If the st
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The second tax scenario attaches to
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include that nullity in his taxable
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then the capital gain to be taxed h
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Most relevant to Morris is Section
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To begin with, the ESOP will have t
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general partner of a limited partne
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small businesses) is also subject t
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oth Lisa and Brad would be free to
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Assume that a limited liability com
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corporations, and had been audited
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There is plenty of blame from the c
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• An important study about top ma
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• The federal government made at
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$79.7 million for other services, a
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Budgets offer a variety of benefits
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determine the impact of specific pr
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Exhibit 11.2 Budget variance report
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udget, we just add more to it next
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income statement. The financial bud
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For a manufacturing company, cost o
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C&G‟s Gift Shop has a policy to m
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Meeting cash obligations as they co
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was unusually low, say, due to the
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A fixed budget, sometimes called a
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A large part of the budget selling
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• Centralized resource allocation
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Merewitz, Leonard, and Stephen H. S
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This chapter starts with a discussi
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Interestingly the numbers for quart
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Exhibit 12.4 Scenarion analysis.
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Pitfalls Although this analytic tec
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Exhibit 12.6 Variable cost element
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Variable Cost as a Function of Outp
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If scenario 2 yields a lower profit
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Microsoft certainly does not price
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If it is determined that dumping ha
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Leaving government agencies and not
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transaction processing. Each proces
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Exhibit 13.3 E-commerce transaction
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To summarize the analysis, the busi
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Capacity costs are probably the mos
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which it was, but for the inventory
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They called this strategic cost man
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A closer study, however, revealed s
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the benefits of business planning.
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The last type of plan is called a d
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The Business Plan We will progress
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Hook the Reader That means having t
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Industry The goal of this section i
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upscale suburban client who wants p
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Company and Product Description Com
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Exhibit 14.8 shows the competitive
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Exhibit 14.9a Advertising schedule.
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Scope of Operations What is the pro
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Development Time Line A development
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By law, most organization types req
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As mentioned in the development pla
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that can be depreciated, you should
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1 Special thanks to Matt Feczko, Mi
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For better or worse, the business e
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Leeson bet and lost. Japanese stock
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Between February and April 1994, Da
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LTCM could be picky when it came to
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An investor who wished to invest in
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Similarly, the swaps market has rev
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speculator would suffer losses equa
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American manufacturer will suffer l
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The ease with which futures facilit
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Exhibit 15.1 Call option payoff dia
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Exhibit 15.2 Payoff diagram for a w
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Notice that the put option payoff r
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Bank, owns a large block of NASDAQ
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can be tailored so that the money r
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Finally, the last step is to choose
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3 Fischer Black, who co-invented th
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not include assets that the firm ha
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Thus, a business valuation will usu
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Negative • Acme is highly depende
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Exhibit 16.3 Acme Manufacturing, In
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Profitability ratios reflect the re
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When we talk about the value of a b
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This example illustrates that with
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Income Approach: Discounted Cash Fl
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Exhibit 16.5 Acme Manufacturing, In
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Victoria explains that the second p
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Victoria analyzes Acme‟s audited
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In summary, the discounted cash flo
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Adjustment for Illiquidity As previ
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51% position sells for a higher pri
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examples. The proper application of
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The subject of this chapter is grow
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Finally, an acquisition can be effe
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M&A activity has been the focus of
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companies continue to make the same
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equals was taking on a distinctive
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Anatomy of a Successful Acquirer: T
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employees kept their original jobs
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where ΔCF t is the incremental cas
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where it‟s ultimately buried. Suc
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The following example summarizes th
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make sure that you are at least awa
Page 493 and 494:
acquisition, there is no immediate
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its vascular business, which was so
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While all employees should be part
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makes strategic and financial sense
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Bhagat, Sanjai, Ming Dong, David Hi
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The 2008 financial crisis underscor
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Source: Plunkett’s Outsourcing &
Page 509 and 510:
To summarize: Trends • Large numb
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Companies are becoming increasingly
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What steps should a company follow
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• Results of meetings with vendor
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• Breach of contract and remedies
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Assuming the project or service rev
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The answer is: profits. The company
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19 Information Technology and You D
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People‟s lives have been turned u
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its self-contained rechargeable bat
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Random-Access Memory (RAM) Random-a
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On laptop computers and PDAs, the s
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Operating System An operating syste
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the spreadsheet software together w
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Exhibit 19.5 Pro forma sales and in
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Database Software A database is a c
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Internet e-mail addresses often con
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Personal Finance Software There are
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There are several different approac
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One of the major attractions of the
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While not a new version of the Web
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industrial revolution, and has occu
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Dummies Inc. has a series of books
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organization. This chapter is desig
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As technology has evolved, the term
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While the software mentioned earlie
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Most of the focus of the investor c
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Data Access and OLAP Before the lat
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Exhibit 20.5 illustrates a differen
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Productivity Tools Workers expect t
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Client-server technology is based o
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Today, most programmers write in C+
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Exhibit 20.6 is a model of a typica
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No treatment of relational database
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Online analytical processing (OLAP)
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server) and the rest on the users
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the other operational departments w
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The world of business has changed d
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Chaffey, Dave, E-Commerce and E-Com
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According to the results of the sur
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understand the financial situation
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MBA graduates who are hoping to ent
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Summary Financial services opportun
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Let‟s begin with the “I left it
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MBA student: “Well, I go to [Grea
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Aiming for Your Goals For career ch
Page 609 and 610:
Networking is generally regarded as
Page 611 and 612:
Let‟s begin with some key assumpt
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like, or moving ahead in the compan
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Accrual accounting: An accounting m
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Cash flow: Cash that is spent or re
Page 622 and 623:
Distribution channel: A chain of in
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Goodwill: As it relates to valuatio
Page 626 and 627:
Management’s discussion and analy
Page 628 and 629:
Ordinary annuity: An annuity that p
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Securities and Exchange Commission
Page 632 and 633:
Vertical merger: A merger in which
Page 634 and 635:
about activity-based costing progre
Page 636 and 637:
Application systems ARPAnet Arthur
Page 638 and 639:
Bell Labs Benefit measurement Beta
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goal orientation legal and contract
Page 642 and 643:
segment information note share-base
Page 644 and 645:
process of purpose of real world us
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uy/build decision capital budget in
Page 648 and 649:
written resume Careers in corporate
Page 650 and 651:
Cell Center for Research in Securit
Page 652 and 653:
Compensation and ownership Competit
Page 654 and 655:
Corporate culture Corporate debt in
Page 656 and 657:
profit planning from an internal pe
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Data Data access and OLAP Database
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Askin Capital Management Barings Ba
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market approach publicly traded gui
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Electronic data interchange (EDI) E
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Extensible markup language (XML) Ex
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short term liquidity users and uses
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Fourth generation programming (4GL)
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Going private Going private transac
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Hypertext links Hypertext markup la
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Information technology and the firm
Page 678 and 679:
International Accounting Standards
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Last-in-first out (LIFO) vs. curren
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Long call option payoff Longer-term
Page 684 and 685:
Market risks Market size and struct
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Motivation to outsource Multiple IR
Page 688 and 689:
Nonrecurring items defined disclosu
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Operational complexity Operational
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Outsourcing metrics Overhead Over-t
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Personal end game Personal expense
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Price competition Price decreases P
Page 698 and 699:
Projected cash flow statements Proj
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Relevant range Relevant range assum
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Risk sharing Risk transfer Risk vs.
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Short call option payoff Short part
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Spot price Spreadsheet software Spr
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Summarizing nonrecurring items and
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acquisition the business dividends
Page 712 and 713:
Timmon‟s Model of Opportunity Rec
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U.S. immigration quotas U.S. Intern
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discounting with discount rate form
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