FIN301 Class Web Page, Spring ' 20
Instructor: Maggie Foley
Jacksonville University
Business
Finance Online, an interactive learning tool for the Corporate Finance
Student http://www.zenwealth.com/BusinessFinanceOnline/index.htm
Weekly SCHEDULE, LINKS, FILES and Questions
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Chapter |
Coverage, HW, Supplements -
Required |
References
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Chapter
1, 2 |
Discussion: How to pick stocks (finviz.com) Daily earning announcement: http://www.zacks.com/earnings/earnings-calendar IPO schedule: http://www.marketwatch.com/tools/ipo-calendar FYI: MarketWatch Stock
Game written by Maelyn O’Connor (Thanks, Maelyn) Chapter 1: Introduction
Flow
of funds describes the financial assets flowing from various sectors through
financial intermediaries for the purpose of buying physical or financial
assets. *** Household, non-financial business, and our government Financial
institutions facilitate exchanges of funds and financial products. ***
Building blocks of a financial system. Passing and transforming funds and
risks during transactions. ***
Buy and sell, receive and deliver, and create and underwrite financial
products. ***
The transferring of funds and risk is thus created. Capital utilization for
individual and for the whole economy is thus enhanced. Chapter 2 Introduction of Financial Market 1.
What are
the six parts of the financial markets
Money: · To pay for purchases and store wealth (fiat money, fiat currency) Financial Instruments: · To transfer resources from savers to investors and to transfer risk to those best equipped to bear it. Financial
Markets: · Buy and sell financial instruments · Channel funds from savers to investors, thereby promoting economic efficiency · Affect personal wealth and behavior of business firms. Example? Financial Institutions. · Provide access to financial markets, collect information & provide services · Financial Intermediary: Helps get funds from savers to investors Central Banks · Monitor financial Institutions and stabilize the economy Regulatory Agencies · To provide oversight for financial system. 2.
What
are the five core principals of finance
Introduction
to Capital Markets - ION Open Courseware (Video) How the stock market works (video) No homework for chapter 2 |
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Chapter 5 Time value of Money Time
value of money (Video) The
time value of money - German Nande (video)
Tutoring of Time Value of Money calculation
in Excel （video） Chapter
5 Homework (due on first mid term) 1.
You deposit $5,000 in a saving account at 10% compounded annually.
How much is your first year interest? How much is your second year interest?
(500, 550) 2.
What is the future value of $5,000 invested for 3 years at 10%
compounded annually? ( 6,655) 3.
You just bought a TV for $518.4 on credit card. You plan to pay back
of $50 a month for this credit card debt. The credit card charges you 12% of
interest rate on the monthly basis. So how long does it take to pay back your
credit card debt? (11 months) 4.
You are going to deposit certain amount in the next four years. Your
saving account offers 5% of annual interest rate. First year: $800 Second year: $900 Third year: $1000 Fourth year: $1200. How much you can withdraw four years later? (4168.35) 5.
You are going to deposit certain amount in the next four years. Your
saving account offers 5% of annual interest rate. First year: $800 Second year: $900 Third year: $1000 Fourth year: $1200. How much is the lump sum value as of today (NPV)? (3429.31) 6.
Ten years ago, you invested $1,000. Today it is worth $2,000. What
rate of interest did you earn? (7.18%) 7.
At 5 percent interest, how long would it take to triple your
money? (22.52) 8.
What is the effective annual rate if a bank charges you 12 percent
compounded monthly? (12.68%) 9.
Your father invested a lump sum 16 years ago at 8% interest for your
education. Today, that account worth $50,000.00. How much did your father
deposit 16 years ago? ($14594.50) 10. You are borrowing
$300,000 to buy a house. The terms of the mortgage call for monthly payments
for 30 years at 3% interest. What is the amount of each payment?
($1264.81) 11. You deposit $200 at
the beginning of each month into your saving account every month.
After two years (24 deposits total), your account value is $6,000. Assuming
monthly compounding, what is your monthly rate that the bank provides? (1.74%) 12. You want to buy a fancy car. For this goal,
you plan to save $5,500 per year, beginning immediately. You will make 4 deposits in an account that
pays 8% interest. Under these
assumptions, how much will you have 4 years from today? ($26,766) 13. Citi card is giving
you a good deal. You can transfer your balance from your current credit card
to Citi new card with $50 balance transfer fee. The new card charges at 5% a
year. But your old card charges at 12% a year. Your balance in your old card
is $5,000. If you can afford to pay back to the credit card of $250 a month.
How much quicker does it take you to pay back your debt with the new card?
(Hint: for the new card, your debt = 5000+50=5050; Assume monthly compounding
by credit card companies). (1.28 months) 14.
Your girlfriend just won the Florida lottery. She has the choice of $40,000,000 today or
a 20-year annuity of $2,850,000, with the first payment coming one year from
today. If the mutual fund of hers provides 4% of return each year for the
next 20 years, which payment option is more attractive to her? ($40million) 15.
The
Thailand Co. is considering the purchase of some new equipment. The quote
consists of a quarterly payment of $4,740 for 10 years at 6.5 percent
interest. What is the purchase price of the equipment? ($138,617.88) 16.
The
condominium at the beach that you want to buy costs $249,500. You plan to
make a cash down payment of 20 percent and finance the balance over 10 years
at 6.75 percent. What will be the amount of your monthly mortgage
payment? ($2,291.89) 17.
Today,
you are purchasing a 15-year, 8 percent annuity at a cost of $70,000. The
annuity will pay annual payments. What is the amount of each
payment? ($8,178.07) 18.
Shannon
wants to have $10,000 in an investment account three years from now. The
account will pay 0.4 percent interest per month. If Shannon saves money every
month, starting one month from now, how much will she have to save each
month? ($258.81) 19.
Trevor's
Tires is offering a set of 4 premium tires on sale for $450. The credit terms
are 24 months at $20 per month. What is the interest rate on this
offer? (6.27 percent) 20.
Top
Quality Investments will pay you $2,000 a year for 25 years in exchange for
$19,000 today. What interest rate are you earning on this annuity? (9.42
percent) 21.
You
have just won the lottery! You can receive $10,000 a year for 8 years or
$57,000 as a lump sum payment today. What is the interest rate on the
annuity? (8.22 percent) 22.
Around
Town Movers recently purchased a new truck costing $97,000. The firm financed
this purchase at 8.25 percent interest with monthly payments of $2,379.45.
How many years will it take the firm to pay off this debt? (4.0 years) 23.
Expansion,
Inc. acquired an additional business unit for $310,000. The seller agreed to
accept annual payments of $67,000 at an interest rate of 6.5 percent. How
many years will it take Expansion, Inc. to pay for this purchase? (5.68
years) 24.
You
want to retire early so you know you must start saving money. Thus, you have
decided to save $4,500 a year, starting at age 25. You plan to retire as soon
as you can accumulate $500,000. If you can earn an average of 11 percent on
your savings, how old will you be when you retire? (49.74 years) 25.
You
just received a credit offer in an email. The company is offering you $6,000
at 12.8 percent interest. The monthly payment is only $110. If you accept
this offer, how long will it take you to pay off the loan? (82.17
months) 26.
Fred
was persuaded to open a credit card account and now owes $5,150 on this card.
Fred is not charging any additional purchases because he wants to get this
debt paid in full. The card has an APR of 15.1 percent. How much longer will
it take Fred to pay off this balance if he makes monthly payments of $70
rather than $85? (93.04 months) 27.
Bridget
plans to save $150 a month, starting today, for ten years. Jordan plans to
save $175 a month for ten years, starting one month from today. Both Bridget
and Jordan expect to earn an average return of 8 percent on their savings. At
the end of the ten years, Jordan will have approximately _____ more than
Bridget. ($4,391) 28.
What
is the future value of weekly payments of $25 for six years at 10
percent? ($10,673.90) 29.
At
the end of this month, Bryan will start saving $80 a month for retirement
through his company's retirement plan. His employer will contribute an
additional $.25 for every $1.00 that Bryan saves. If he is employed by this
firm for 25 more years and earns an average of 11 percent on his retirement
savings, how much will Bryan have in his retirement account 25 years from
now? ($157,613.33) 30.
Sky
Investments offers an annuity due with semi-annual payments for 10 years at 7
percent interest. The annuity costs $90,000 today. What is the amount of each
annuity payment? ($6,118.35) 31.
Mr. Jones just won a
lottery prize that will pay him $5,000 a year for thirty years. He will
receive the first payment today. If Mr. Jones can earn 5.5 percent on his
money, what are his winnings worth to him today? ($76,665.51) |
Summary of math and excel equations Math
Equations FV
= PV *(1+r)^n PV
= FV / ((1+r)^n) N
= ln(FV/PV) / ln(1+r) Rate
= (FV/PV)1/n -1 Annuity:
N = ln(FV/C*r+1)/(ln(1+r)) Or
N = ln(1/(1-(PV/C)*r)))/ (ln(1+r)) EAR
= (1+APR/m)^m-1 APR
= (1+EAR)^(1/m)*m
Excel
Formulas To get FV, use FV function. =abs(fv(rate, nper,
pmt, pv)) To get PV, use PV
function = abs(pv(rate, nper,
pmt, fv)) To get r, use rate
function =
rate(nper, pmt, pv, -fv) To get number of years,
use nper function = nper(rate, pmt, pv,
-fv) To
get annuity payment, use PMT function = pmt(rate, nper, pv,
-fv) To
get Effective rate (EAR), use Effect function =
effect(nominal_rate, npery) To
get annual percentage rate (APR), use nominal function =
nominal(effective rate, npery) NPV NFV calculator(FYI, might be
helpful) Time Value of Money
Calculator |
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Chapter 6 Risk and Return Risk
and Return in class exercise Excel file here will be provided soon Steps: In class exercise Excel Results (BABA, TESLA, Apple,
S&P500) 1. Pick three stocks. Has to be the leading firm
in three different industries. 2. From finance.yahoo.com, collect stock prices
of the above firms, in the past five years Steps: ·
Goto finance.yahoo.com,
search for the company ·
Click on “Historical prices” in the left
column on the top and choose monthly stock prices. ·
Change the starting date and ending date to
“1/24/2019” and “1/24/2020”, respectively. ·
Download it to Excel ·
Delete all inputs, except “adj close” – this is
the closing price adjusted for dividend. ·
Merge the three sets of data just downloaded 3. Evaluate the performance of each stock: ·
Calculate the monthly stock returns. ·
Calculate the average return ·
Calculate standard deviation as a proxy for
risk ·
Calculate correlation among the three stocks. ·
Calculate beta. But you need to download
S&P500 index values in the past
five years from finance.yahoo.com. ·
Calculate stock
returns based on CAPM. ·
Draw SML
·
Conclusion and take away?
Effect
of Diversification
Please refer to template Chapter 6 In Class Exercise(Word file here )
HW of chapter 6 (Due with
the second mid Term exam) Chapter
6 Homework 1)
Stock A has the following returns for various states of the economy: State
of the
Economy Probability Stock
A's Return Recession 10% -30% Below
Average 20% -2% Average 40% 10% Above
Average 20% 18% Boom 10% 40% Stock
A's expected return is? (ANSWER: 8.2%) 2)
Joe purchased 800 shares of Robotics Stock at $3 per share on 1/1/09. Bill
sold the shares on 12/31/09 for $3.45. Robotics stock has a beta of 1.9, the
risk-free rate of return is 4%, and the market risk premium is 9%. Joe's
holding period return is? (ANSWER:
15%) 3. You
own a portfolio with the following expected returns given the various states
of the economy. What is the overall portfolio expected return? (ANSWER:
9.05%) State
of economy probability
of state of
economy rate
of return if state occurs Boom 27% 14% Normal 70% 8% Recession 3% -11% 4)
The prices for the Electric Circuit Corporation for the first quarter of 2009
are given below. The price of the stock on January 1, 2009 was
$130. Find the holding period return for an investor who purchased the stock
onJanuary 1, 2009 and sold it the last day of March 2009. (ANSWER: 2.12%) Month
End Price January $125.00 February 138.50 March 132.75 5)
Collectibles Corp. has a beta of 2.5 and a standard deviation of returns of
20%. The return on the market portfolio is 15% and the risk free rate is 4%.
What is the risk premium on the market?
(ANSWER: 11%) 6)
An investor currently holds the following portfolio: Amount Invested 8,000
shares of
Stock A $16,000 Beta = 1.3 15,000
shares of Stock B $48,000 Beta = 1.8 25,000
shares of Stock C $96,000 Beta = 2.2 The
beta for the portfolio is? (ANSWER:
1.99) 7)
Assume that you have $165,000 invested in a stock that is returning 11.50%,
$85,000 invested in a stock that is returning 22.75%, and $235,000 invested
in a stock that is returning 10.25%. What is the expected return of your
portfolio? (ANSWER: 13%) 8)
If you hold a portfolio made up of the following stocks: Investment
Value Beta Stock
A $8,000 1.5 Stock
B $10,000 1.0 Stock
C $2,000 .5 What
is the beta of the portfolio? (ANSWER:
1.15) 9. The risk-free rate of
return is 3.9 percent and the market risk premium (rm –rf)
is 6.2 percent. What is the expected rate of return on a stock with a beta of
1.21? (ANSWER: 11.4%) 10. You own a portfolio consisting of the stocks below. Stock Percentage
of
portfolio Beta 1. 20% 1 2. 30% 0.5 3. 50% 1.6 The risk free rate is 3% and
market return is 10%. a. Calculate
the portfolio beta. (ANSWER:
1.15) b. Calculate
the expected return of your portfolio. (ANSWER: 11.05%) 11. Computing holding period return for Jazman and
Solomon for period 1 through 3 (bought in period 1 and sold in period 3).
Show the holding period returns for each company. (ANSWER: 50%, -25%) Period Jazman Solomon 1 $10 $20 2 $12 $25 3 $15 $15 12. Calculate expected return
(ANSWER:
12%)
13. Calculate the expected returns of the
following cases, respectively 1) Invest
$10,000 in Treasury bill with guaranteed return of 4%. (ANSWER: 4%) 2) Investment
$10,000 in Apple. 50% possibility to earn 20% return and 50% possibility to
lose 10% of investment.(ANSWER: 5%) 3) Investment
$10,000 in Wal-Mart. 50% possibility to earn 5% return and 50% possibility to
earn 0% of investment.(ANSWER: 2.5%) 14. Rank the risk of the following cases, from
the least risky one the most risky one
(ANSWER: 1, 3, 2) 1) Invest
$10,000 in Treasury bill with guaranteed return of 4%. 2) Investment
$10,000 in Apple. 50% possibility to earn 20% return and 50% possibility to
lose 10% of investment. 3) Investment
$10,000 in Wal-Mart. 50% possibility to earn 5% return and 50% possibility to
earn 0% of investment. 15. An
investor currently holds the following portfolio: Amount Invested 8,000
shares of
Stock A $10,000 Beta = 1.5 15,000
shares of Stock B $20,000 Beta = 0.8 25,000
shares of Stock C $20,000 Beta = 1.2 Calculate
the beta for the portfolio.(ANSWER:
1.1) 16. Joe
purchased 800 shares of Robotics Stock at $5 per share on 1/1/13. Bill sold
the shares on 4/18/13 for $6. Robotics stock has a beta of 1.2, the risk-free
rate of return is 1%, and the market risk premium is 10%. Joe's holding
period return is how much? (ANSWER:
20%) |
Holding Period Return Calculator
Two Stock Portfolio Return and
Standard Deviation Equations (FYI)
stdev(array of returns)
Excel
for beta used in CAPM slope(array of stock returns,
array of market returns) Portfolios – two stocks Calculator https://www.jufinance.com/portfolio/ Equations:
W1 and W2 are the percentage of each stock in the
portfolio.
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First Mid Term Part I (Chapter 5) - 2/18 First Mid Term Part II (Chapter 6)
- 2/20 Study
Guide Multiple Choices (20*2.5=50)
Refer to the above table to answer questions 1-10. 1. How much is company 1’s average return in the past five months? 2. How much is company 1’s risk level in the past five months (standard deviation) if it is evaluated individually? 3. What is the beta of the company 1? (hint: check slope) 4. What is the correlation between company 1 and company 2? 5. What is the correlation between company 1 and company 4? 6. What is the beta of the company 2? (hint: check slope) 7. What is the beta of the company 3? (hint: check slope) 8. Among company 1, 2, and 3, which one is the most risky one, based on beta? 9. The correlation between a pair of stocks 10-12CAPM calculation 13-14SML line: slope, intercept 15.
Stock A has the following returns for various states of the
economy: Economy Probability Stock
A's Return Recession given given Average given given Boom given given Stock A's expected return is? 16. holding period return? 17.
Calculate the portfolio’s
beta given amount in each stock and beta. 18. systematic risk example 19. What is diversification 20. What is risk and return relationship? |
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Chapter 3 Financial Statement Analysis Experts Explain: Financial Statements (well
explained, video) *************
Introduction *************** Let’s
compare Nike with GoPro based on 10K (www.nasdaq.com) Nike Income
Statement (values in 000's)
Nike Balance
Sheet (values in 000's)
Nike Cash
Flow Statement (values in 000's)
For discussion: Which company is
better? Let’s
find it out by comparing stock performance between the two firms. What
is your conclusion? Nike
Stock price chart in the past five years
******* Part I: Balance Sheet and
Income Statement ************** Home Depot (Ticker in the
market: HD) reported the following information for the year ended January 30th,
2011 (expressed in millions). Sales: $67,977 Cost of goods sold: $44,693 Marketing, general and
administrative expenses: $15,885 Depreciation expenses:
$1,616 Interest expense: $530 Tax rate: 36.70% Number of shares
outstanding: 1,623 Dividends paid to stockholders:
$1,569. Use the above information
to try to prepare the income statement of Home Depot
for the year ended January 30th, 2011 Home Depot (Ticker in the
market: HD) reported the following information for the year ended January 30th,
2011 (expressed in millions). Cash: $545 Accounts receivables:
$1,085 Inventories: $10625 Other current assets:
$1,224 Gross fixed assets: $38,471 Accumulated depreciation:
$13,411 Other fixed assets: $1,586 Accounts payable: $9,080 Short term notes payable:
$1,042 Long term debt: $11,114 Total common stock: $3,894 Retained earnings: $14,995 Use the above information to try to prepare the
balance sheet of Home Depot for the year ended January 30th, 2011. |
GoPro Income
Statement (values in 000's)
GoPro
Balance Sheet (values in 000's)
GoPro Cash
flow Statement (values in 000's)
GoPro
Stock price chart in the past four years
http://www.jufinance.com/10k/bs http://www.jufinance.com/10k/is http://www.jufinance.com/10k/cf Ratio
Analysis (plus balance
sheet, income statement) https://www.jufinance.com/ratio |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
********* Part II: Cash Flow Statement ******************
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
In Millions of USD (except for per share items) |
52 weeks ending 2014-02-02 |
|
Net Income/Starting Line |
5,385.00 |
|
Depreciation/Depletion |
1,757.00 |
|
Amortization |
- |
|
Deferred Taxes |
-31 |
|
Non-Cash Items |
228 |
|
Changes in Working Capital |
289 |
|
Cash from Operating Activities |
7,628.00 |
|
Capital Expenditures |
-1,389.00 |
|
Other Investing Cash Flow Items, Total |
-118 |
|
Cash from Investing Activities |
-1,507.00 |
|
Financing Cash Flow Items |
-37 |
|
Total Cash Dividends Paid |
-2,243.00 |
|
Issuance (Retirement) of Stock, Net |
-8,305.00 |
|
Issuance (Retirement) of Debt, Net |
3,933.00 |
|
Cash from Financing Activities |
-6,652.00 |
|
Foreign Exchange Effects |
-34 |
|
Net Change in Cash |
-565 |
|
Cash Interest Paid, Supplemental |
639 |
|
Cash Taxes Paid, Supplemental |
2,839.00 |
Discussion:
2. What does net change in cash mean?
Now
let’s learn how to calculate cash changes in each session
Source
of cash
- Decrease
in an Asset
- Example: Selling inventories or
collecting receivables provides cash
- Increase
in Liability or Equity
- Example: Borrowing funds or selling
stocks provides cash
Use
of Cash
- Increase
in an Asset
- Example: Investing in fixed assets
or buying more inventories uses cash
- Decrease in Liability or Equity
- Example: Paying off a loan or
buying back stock uses cash
Cash
Flow from Operations: Five Steps
1. Add back depreciation.
2. Subtract (add) any increase (decrease) in accounts
receivable.
3. Subtract (add) any increase (decrease) in inventory.
4. Subtract (add) any increase (decrease) in other current
assets.
5. Add (subtract) any increase (decrease) in accounts payable
and other accrued expenses
Chapter 3 HW
1. For
the above precision tool example, work out the cash flow statement
2.
Firm AAA just showed how it
operated in the prior year.
Sales = $2,000; Cost of Goods Sold =
$1,000; Depreciation Expense = $200; Administrative Expenses = $180; Interest
Expense = $30; Marketing Expenses = $50; and Taxes = $200. Prepare income statement
3. A firm has $2000 in current assets, $3000 in fixed assets, $300 in accounts receivables, $300 accounts payable, and $800 in cash. What is the amount of the inventory? (hint: 900)
4.
A
firm has net working capital of $1000. Long-term debt is $5000, total assets
are $8000, and fixed assets are $5000. What is the amount of the total
equity? (Hint: to find total equity, you need to calculate total debt, which
is a sum of long term debt and short term debt. Short term can be found from
new working capital.) (hint: 1000)
5. Andre's Bakery has sales of $100,000 with costs of $50,000. Interest expense is $20,000 and depreciation is $10,000. The tax rate is 35 percent. What is the amount of tax paid? (hint: 7000)(hint: tax = taxable income * tax rate and taxable income = EBT)
6. Andre's Bakery has sales of $100,000 with costs of $50,000. Interest expense is $20,000 and depreciation is $10,000. The tax rate is 35 percent. The company also paid $3,000 for dividend. What is the retained earning? (hint: retained earning = net income - dividend)(hint: 10,000)
|
Cash
Flow Statement Answer |
calculation for changes |
||
|
Cash
at the beginning of the year |
2060 |
||
|
Cash from operation |
|||
|
net
income |
3843 |
||
|
plus
depreciation |
1760 |
||
|
-/+
AR |
-807 |
807 |
|
|
-/+ Inventory |
-3132 |
3132 |
|
|
+/- AP |
1134 |
1134 |
|
|
net change in cash from operation |
2798 |
||
|
Cash from investment |
|||
|
-/+ (NFA+depreciation) |
-1680 |
1680 |
|
|
net change in cash from investment |
-1680 |
||
|
Cash from finaning |
|||
|
+/- long term debt |
1700 |
1700 |
|
|
+/- common stock |
2500 |
2500 |
|
|
- dividend |
-6375 |
6375 |
|
|
net change in cash from investment |
-2175 |
||
|
Total net change of cash |
-1057 |
||
|
Cash at the end of the year |
1003 |
||
(The excel file of the above cash flow statement is here)
More
exercises of chapter 3 (word file here)
More exercise
Prepare cash flow statement based on information
given
Increase in accounts receivable $20
Decrease in inventory 10
Operating income 120
Interest expense 20
Decrease in accounts payable 20
Dividend 10
Increase in common stock 30
Increase in net fixed asset 10
Depreciation 5
Income tax 10
Beginning cash 100
Chapter 4: Ratio Analysis
Stock
screening tools
FINVIZ.com
http://finviz.com/screener.ashx
We
will focus on the following several ratios:
P/E (price per share/earning per share, P/E < 15, a
bargain)
PEG (PE ratio / growth rate. PEG<1, undervalued
stock)
EPS (earning per share)
ROA (Return on Asset = NI/TA, ROA>10% should be a
nice benchmark)
ROE (return on equity = NI/TE, ROE>15% should be
good)
Current
ratio (liquidity measure. = CA/CL,
has to be greater than one)
Quick
ratio (liquidity measure. =
(CA-Inventory)/CL, has to be greater than one)
Debt
Ratio (Leverage measure. = TD/TA,
need to be optimal, usually between 30% and 40%)
Gross
margin (profit measure. =
EBITDA/sales, or = Gross margin/sales, has to be positive)
Operating
margin (profit measure. = EBIT/sales, or
= operating income/sales, has to be positive)
Net
profit margin (profit measure. = NI/sales,
has to be positive)
Payout
ratio (= dividend / NI, measures
distribution to shareholders. No preferences. Usually value stocks have high
payout ratio; Growth stocks have low payout ratio).
|
Nike
--- Valuation |
|
|
P/E Current |
70.74 |
|
P/E Ratio (w/o extraordinary items) |
61.37 |
|
Price to Sales Ratio |
3.28 |
|
Price to Book Ratio |
11.72 |
|
Price to Cash Flow Ratio |
24.04 |
|
Enterprise Value to EBITDA |
25.71 |
|
Enterprise Value to Sales |
3.62 |
|
Total Debt to Enterprise Value |
0.03 |
|
Efficiency |
|
|
Revenue/Employee |
497,442.00 |
|
Income Per Employee |
26,443.00 |
|
Receivables Turnover |
10.14 |
|
Total Asset Turnover |
1.59 |
|
Liquidity |
|
|
Current Ratio |
2.51 |
|
Quick Ratio |
1.63 |
|
Cash Ratio |
0.87 |
|
Profitability |
|
|
Gross Margin |
44.03 |
|
Operating Margin |
12.38 |
|
Pretax Margin |
11.89 |
|
Net Margin |
5.32 |
|
Return on Assets |
8.44 |
|
Return on Equity |
17.4 |
|
Return on Total Capital |
30.17 |
|
Return on Invested Capital |
13.26 |
|
Capital Structure |
|
|
Total Debt to Total Equity |
38.83 |
|
Total Debt to Total Capital |
27.97 |
|
Total Debt to Total Assets |
16.91 |
|
Long-Term Debt to Equity |
35.34 |
|
Long-Term Debt to Total Capital |
25.46 |
GoPro ---
|
Valuation |
|
|
P/E Current |
-5.55 |
|
P/E Ratio (with extraordinary items) |
-6.59 |
|
Price to Sales Ratio |
0.89 |
|
Price to Book Ratio |
3.47 |
|
Enterprise Value to EBITDA |
-10.29 |
|
Enterprise Value to Sales |
0.83 |
|
Total Debt to Enterprise Value |
0.14 |
|
Efficiency |
|
|
Revenue/Employee |
926,741.00 |
|
Income Per Employee |
-143,655.00 |
|
Receivables Turnover |
8.5 |
|
Total Asset Turnover |
1.33 |
|
Liquidity |
|
|
Current Ratio |
1.55 |
|
Quick Ratio |
1.14 |
|
Cash Ratio |
0.67 |
|
Profitability |
|
|
Gross Margin |
34.86 |
|
Operating Margin |
-11.37 |
|
Pretax Margin |
-14.95 |
|
Net Margin |
-15.5 |
|
Return on Assets |
-20.63 |
|
Return on Equity |
-49.05 |
|
Return on Total Capital |
-30.64 |
|
Return on Invested Capital |
-41.77 |
|
Capital Structure |
|
|
Total Debt to Total Equity |
43.54 |
|
Total Debt to Total Capital |
30.33 |
|
Total Debt to Total Assets |
15.3 |
|
Long-Term Debt to Equity |
43.54 |
|
Long-Term Debt to Total Capital |
30.33 |
Happy Spring Break
3/17 Live
Session (on blackboard as well)
·
Chapter 3 homework
·
in class exercise
·
Chapter 4 review
Chapter 7 Bond pricing
Simplified Balance Sheet of WalMart
|
In Millions of USD |
As
of 2019-01-31 |
|
Total Assets |
219,295,000 |
|
Total Current Liabilities |
77,477,000 |
|
Long Term Debt |
43,520,000 |
|
Total Liabilities |
139,661,000 |
|
Total Equity |
72,496,000 |
|
Total Liabilities & Shareholders' Equity |
219,295,000 |
For discussion:
· What is this “long term debt”?
· Who is the lender of this “long term debt”?
So this long term debt is called bond in the financial
market. Where can you find the pricing information and other specifications
of the bond issued by WMT?
Investing Basics: Bonds(video)
FINRA
– Bond market information
http://finra-markets.morningstar.com/BondCenter/Default.jsp
Chapter 7 Study guide
1. Go to http://finra-markets.morningstar.com/BondCenter/Default.jsp , the bond market data website of FINRA to find bond
information. For example, find bond sponsored by Wal-mart
Or, just go to www.finra.org, è Investor center è market data è bond è corporate bond
Corporate
Bond
|
|
|
|
|
|
|
ratings |
last sale |
||
|
Issuer Name |
Symbol |
Callable |
Sub-Product Type |
Coupon |
Maturity |
Moody's® |
S&P |
Price |
Yield |
|
WMT.GP |
Corporate Bond |
7.55 |
2/15/2030 |
Aa2 |
AA |
145.285 |
2.388 |
||
|
WMT.GP |
Corporate Bond |
6.75 |
10/15/2023 |
Aa2 |
AA |
112.914 |
2.916 |
||
|
WMT.GP |
Corporate Bond |
5.25 |
9/1/2035 |
Aa2 |
AA |
123.832 |
3.272 |
||
|
WMT.IA |
Corporate Bond |
5.875 |
4/5/2027 |
Aa2 |
AA |
117.433 |
3.1 |
||
|
WMT.IC |
No |
Corporate Bond |
6.5 |
8/15/2037 |
Aa2 |
AA |
130.018 |
4.075 |
|
|
WMT4117477 |
Yes |
Corporate Bond |
3.3 |
4/22/2024 |
Aa2 |
AA |
101.827 |
2.795 |
|
2. 2.
Understand what is coupon, coupon rate, yield, yield to maturity, market
price, par value, maturity, annual bond, semi-annual bond, current yield.
3. 3.
Understand how to price bond
Bond price = abs(pv(yield,
maturity, coupon, 1000)) -------
annual coupon
Bond price = abs(pv(yield/2,
maturity*2, coupon/2, 1000)) ------- semi-annual coupon
Also change the yield and
observe the price changes. Summarize the price change pattern and draw a
graph to demonstrate your findings.
Again, when yield to maturity
of this semi_annual coupon bond is 3%, how should this WMT
bond sell for?
4. Understand
how to calculate bond returns
Yield to maturity =
rate(maturity, coupon, -market price, 1000) – annual coupon
Yield to maturity =
rate(maturity*2, coupon/2, -market price, 1000)*2 – semi-annual
coupon
For example, when the annual
coupon bond is selling for $1,200, what is its return to investors?
For example, when the semi-annual
coupon bond is selling for $1,200, what is its return to investors?
5. Current
yield: For the above bond, calculate current yield.
6. Zero
coupon bond: coupon=0 and treat it as semi-annual coupon bond.
Example: A ten year zero coupon bond is selling for $400. How
much is its yield to maturity?
A ten year zero coupon
bond’s yield to maturity is 10%. How much is its price?
7. Understand
what is bond rating and how to read those ratings. (based on z
score. What is z score?)
a. Who
are Moody, S&P and Fitch?
b. What
is IBM’s rating?
c. Is
the rating for IBM the highest?
d. Who
earned the highest rating?
Chapter 7 Home Work
(due with the second mid-term)
1. IBM
5 year 2% annual coupon bond is selling for $950. How much
this IBM bond’s YTM? 3.09%
2. IBM
10 year 4% semi_annual coupon bond is selling for $950. How
much is this IBM bond’s YTM? 4.63%
3. IBM
10 year 5% annual coupon bond offers 8% of return. How much
is the price of this bond? 798.7
4. IBM
5 year 5% semi-annual coupon bond offers 8% of return. How
much is the price of this bond? $878.34
5. IBM
20 year zero coupon bond offers 8% return. How much is the price of this
bond? 208.29
6. Collingwood
Homes has a bond issue outstanding that pays an 8.5 percent coupon and
matures in 18.5 years. The bonds have a par value of $1,000 and a market
price of $964.20. Interest is paid semiannually. What is the yield to
maturity? 8.9%
7. Grand
Adventure Properties offers a 9.5 percent coupon bond with annual payments.
The yield to maturity is 11.2 percent and the maturity date is 11 years from
today. What is the market price of this bond if the face value is
$1,000? 895
8. The
zero coupon bonds of D&L Movers have a market price of $319.24, a face
value of $1,000, and a yield to maturity of 9.17 percent. How many years is
it until these bonds mature? 12.73 years
9. A
zero coupon bond with a face value of $1,000 is issued with an initial price
of $212.56. The bond matures in 25 years. What is the implicit interest, in
dollars, for the first year of the bond's life? 6.29%
The bonds issued by Stainless Tubs
bear a 6 percent coupon, payable semiannually. The bonds mature
in 11 years and have a $1,000 face value. Currently, the bonds sell for $989.
What is the yield to maturity? 6.14%
Summary of bond pricing EXCEL functions
To calculate bond price (annual coupon bond):
Price=abs(pv(yield to maturity, years left to
maturity, coupon rate*1000, 1000)
To calculate yield to maturity (annual coupon
bond)::
Yield to maturity = rate(years left to
maturity, coupon rate *1000, -price, 1000)
To calculate bond price (semi-annual
coupon bond):
Price=abs(pv(yield to maturity/2, years
left to maturity*2, coupon rate*1000/2, 1000)
To calculate yield to maturity (semi-annual
coupon bond):
Yield to maturity = rate(years left to
maturity*2, coupon rate *1000/2, -price, 1000)*2
To calculate number of years left(annual
coupon bond)
Number of years =nper(yield to maturity, coupon
rate*1000, -price, 1000)
To calculate number of years left(semi-annual
coupon bond)
Number of years =nper(yield to
maturity/2, coupon rate*1000/2, -price, 1000)/2
To calculate coupon (annual coupon bond)
Coupon = pmt(yield to maturity, number of
years left, -price, 1000)
Coupon rate = coupon / 1000
To calculate coupon (semi-annual coupon bond)
Coupon = pmt(yield to maturity/2, number of
years left*2, -price, 1000)*2
Coupon rate = coupon / 1000
Math Formula (FYI)
C: Coupon, M: Par, $1,000; i: Yield to maturity; n:
years left to maturity
For Semi-annual, F=2 for semi-annual coupon
M: Par, $1,000; i:
Yield to maturity; n: years left to maturity
Bond calculation (Thanks to Dr. Lane)
Live Sessions
· Also on blackboard
·
3/19
(chapter 7 class) Class Notes FYI
·
3/24
(chapter 7 & homework) Class
Notes FYI
·
3/26 (
chapter 7 & homework)
no
quizzes
Second Mid Term Exam (chapters 3, 4, 7)
· 3/31
· Will be posted on
blackboard at 5pm on
3/31
· email your answers to
mfoley3@ju.edu before 11:59 pm on 3/31
homework due
Chapter 8 Stock Valuation
Wal-Mart
Dividend History
|
Date |
Dividends |
|
8/08/2019 |
0.53 |
|
9/05/2019 |
0.53 |
|
14/03/2019 |
0.53 |
|
6/12/2018 |
0.52 |
|
9/08/2018 |
0.52 |
|
10/05/2018 |
0.52 |
|
8/03/2018 |
0.52 |
|
7/12/2017 |
0.51 |
|
9/08/2017 |
0.51 |
|
10/05/2017 |
0.51 |
|
8/03/2017 |
0.51 |
|
7/12/2016 |
0.5 |
|
10/08/2016 |
0.5 |
|
11/05/2016 |
0.5 |
|
9/03/2016 |
0.5 |
|
2/12/2015 |
0.49 |
|
5/08/2015 |
0.49 |
|
6/05/2015 |
0.49 |
|
11/03/2015 |
0.49 |
|
3/12/2014 |
0.48 |
|
6/08/2014 |
0.48 |
|
7/05/2014 |
0.48 |
|
7/03/2014 |
0.48 |
|
4/12/2013 |
0.47 |
|
7/08/2013 |
0.47 |
|
8/05/2013 |
0.47 |
|
8/03/2013 |
0.47 |
For class discussion:
What
conclusions can be drawn from the above information?
Can
we figure out the stock price of Wal-Mart based on dividend, with reasonable
assumptions?
Dividend Growth Model
Po= D1/(r-g) or Po= Do*(1+g)/(r-g)
R = D1/Po+g = Do*(1+g)/Po+g
D1=Do*(1+g); D2= D1*(1+g)…
Dividend growth model Calculator
Chapter 8 Study Guide
Imagine you bought 100 shares of Wal-Mart (Ticker: WMT) a
year ago.
1. How is your holding period return in the prior year?
Price in 11/7/2018
was $104.88 and price of 11/7/2019 is $119.50
2. The
followings are from google/finance about WMT. https://finance.yahoo.com/quote/WMT?p=WMT&.tsrc=fin-srch
|
|||
|
|||
|
Previous Close |
118.86 |
||
|
Open |
118.83 |
||
|
Bid |
0.00 x 800 |
||
|
Ask |
0.00 x 1000 |
||
|
Day's Range |
118.71 - 119.62 |
||
|
52 Week Range |
85.78 - 120.71 |
||
|
Volume |
3,404,991 |
||
|
Avg. Volume |
5,356,336 |
||
|
Market Cap |
338.995B |
||
|
Beta (3Y Monthly) |
0.62 |
||
|
PE Ratio (TTM) |
27.02 |
||
|
EPS (TTM) |
4.42 |
||
|
Earnings Date |
Nov 14, 2019 |
||
|
Forward Dividend & Yield |
2.12 (1.81%) |
||
|
Ex-Dividend Date |
2019-12-05 |
||
|
1y Target Est |
123.05 |
||
What does each item
indicate?
3. You
own 100 shares of WMT. Are you a significant shareholder of WMT? What type of
rights you have as minor shareholders?
4. If
WMT runs into trouble, how risky is your investment in WMT? Compare with
Treasury bill investors, Treasury bond investors, WMT bond investors, Apple
stock holders, etc.
5. Doug McMillon is the
CEO of Wal-Mart. Do you have any suggestive advices for him? How can you let
him hear from you? How much do you trust him not to abuse your investment?
Are there any ways to discipline him?
6. More
exercise about the dividend growth model.
Consider the valuation of a
common stock that paid $1.00 dividend at the end of the last year and is
expected to pay a cash dividend in the future. Dividends are expected to grow
at 10% and the investors required rate of return is 17%. How much is the
price?
7. The
current market price of stock is $90 and the stock pays dividend of $3 with a
growth rate of 5%. What is the return of this stock?
HW of chapter 8 (due with
final)
1. Northern Gas
recently paid a $2.80 annual dividend on its common stock. This dividend
increases at an average rate of 3.8 percent per year. The stock is currently
selling for $26.91 a share. What is the market rate of return? (answer: 14.6%)
2. Douglass Gardens
pays an annual dividend that is expected to increase by 4.1 percent per year.
The stock commands a market rate of return of 12.6 percent and sells for
$24.90 a share. What is the expected amount of the next dividend? (answer: 2.12)
3.
IBM just paid $3.00 dividend per share to investors. The dividend growth rate
is 10%. What is the expected dividend of the next year? (answer: 3.3)
4.
You bought 1 share of HPD for $20 in May 2008 and sold it for $30 in May
2009. How much is the holding period return? (answer: 50%)
5. The current market
price of stock is $50 and the stock is expected to pay dividend of $2 with a
growth rate of 6%. How much is the expected return to stockholders? (answer: 10%)
6. The stockholder’s expected return is 8% and the stock is expected to pay
dividend of $2 with a growth rate of 4%. How much should the stock be traded
for? (answer: 50)
7. The stockholder’s expected return is 8% and the stock is expected to pay
dividend of $2 with a growth rate of 4%.
How much is the dividend expected to be three years from now? (Hint: D3
= D2*(1+g) = D1*(1+g)2 )(answer: 2.16)
8. Kilsheimer
Company just paid a dividend of $5 per share. Future dividends are expected
to grow at a constant rate of 7% per year. The value of the stock is $42.80.
What is the required return of this stock?(answer: 19.5%)
9. Investors of
Creamy Custard common stock earns 15% of return. It just paid a dividend of
$6.00 and dividends are expected to grow at a rate of 6% indefinitely. What
is expected price of Creamy Custard's stock?(answer: 70.67)
10.
Douglass Gardens pays an annual dividend that is expected to increase
by 6 percent per year. The stock commands a market rate of return of 12.6
percent and sells for $24.90 a share. What is the dividend yield of this
stock? (answer: 6.6%)
Dividend growth model Calculator
(very useful)
Useful website
money.msn.com/investing
zacks.com
minyanville.com
moneychimp.com
navellier.investor.com/portfolio-grader/
nasdaq.com
marketwatch.com
superstockscreener.com
gurufocus.com
portfoliomoney.com
stockconsultant.com
marketgrader.com
moderngraham.com
stockpickr.com
stockta.com
thestreet.com
askstockguru.com
quotes.wsj.com
oldschoolvalue.com
fool.com
analystratings.com
barchart.com
stock2own.com
theonlineinvestor.com
seekingalpha.com
Details
about how to derive the model mathematically (FYI)
The Gordon growth model is a simple discounted cash flow (DCF)
model which can be used to value a stock, mutual fund, or even the entire
stock market. The model is named after Myron Gordon who first published
the model in 1959.
The Gordon model assumes that a
financial security pays a periodic dividend (D) which
grows at a constant rate (g). These growing dividend payments are
assumed to continue forever. The future dividend payments are discounted at
the required rate of return (r) to find the price (P) for the stock
or fund.
Under these simple assumptions, the
price of the security is given by this equation:
In this equation, I’ve
used the “0” subscript
on the price (P) and the “1” subscript
on the dividend (D) to indicate that the price is calculated at time zero and
the dividend is the expected dividend at the end of period one. However, the
equation is commonly written with these subscripts omitted.
Obviously, the assumptions built
into this model are overly simplistic for many real-world valuation
problems. Many companies pay no dividends, and, for those that do,
we may expect changing payout ratios or growth rates as the
business matures.
Despite these
limitations, I believe spending some time experimenting with the Gordon
model can help develop intuition about the relationship between
valuation and return.
Deriving the Gordon Growth Model Equation
The Gordon growth model calculates the present
value of the security by summing an infinite series of discounted dividend
payments which follows the pattern shown here:
Multiplying both sides of the previous
equation by (1+g)/(1+r) gives:
We can then subtract the second equation
from the first equation to get:
Rearranging and simplifying:
Finally, we can simplify further to get
the Gordon growth model equation
dividend growth model:
Refer to http://www.calculatinginvestor.com/2011/05/18/gordon-growth-model/
· Now let’s apply this
Dividend growth model in problem solving.
· chapter 8
· chapter 8 Homework
explained
· chapter 10
· Explained how to use
IRR to get cross over rate
· chapter 10 homework explained
· Class notes 2 (crossover rate,
Excel)
Class of 4/16 --- No class
Final Exam
· will be posted on 4/17 (Friday at 5 pm
and due at 11:59pm, only chapters 8 and 10)
· All homework due
Chapter 10 Capital Budgeting
Chapter 10 In Class Exercise
Question 1: Project
with an initial cash outlay of $20,000 with following free cash flows for 5
years.
Year Cash flows
1 $8,000
2 4,000
3 3,000
4 5,000
5 10,000
1) How
much is the payback period (approach one)?
· Does
this method consider time value of money?
· Easy
to explain to outsiders?
2) If
the firm has a 10% required rate of return. How much is NPV (approach
2)?
· What
does NPV means? NPV>0 indicates what? Otherwise?
· Does
this method consider time value of money?
· Easy
to explain to outsiders?
3) If
the firm has a 10% required rate of return. How much is IRR (approach
3)?
· What
does IRR mean? IRR > 10% indicates what? Otherwise?
· Does
this method consider time value of money?
· Easy
to explain to outsiders?
Question 2: Project
with an initial cash outlay of $60,000 with following free cash flows for 5
years.
Year FCF
Initial
outlay –60,000
1 25,000
2 24,000
3 13,000
4 12,000
5 11,000
The firm has a 15% required rate of return.
Calculate payback period, NPV, IRR. Analyze your results.
Question 3: Mutually Exclusive Projects
1) Consider
the following cash flows for one-year Project A and B, with required rates of
return of 10%. You have limited capital and can invest in one but one
project. Which one?
§ Initial
Outlay: A = $200; B = $1,500
§ Inflow: A
= $300; B = $1,900
2) Example:
Consider two projects, A and B, with initial outlay of $1,000, cost of
capital of 10%, and following cash flows in years 1, 2, and 3:
A:
$100 $200 $2,000
B:
$650 $650 $650
Which project should you choose if they are mutually
exclusive? Independent? Crossover rate?
Chapter 10 Homework (due with final)
1. Consider the following two projects, calculate the NPVs of
the two projects. If the two projects are mutually exclusive, which one should
you choose? What about they are independent projects?(answer: NPVa: -8.67;
NPVb: 12.65; Mutually exclusive: B; Independent:B)
|
Project |
Year
0 Cash
Flow |
Year
1 Cash
Flow |
Year
2 Cash
Flow |
Year
3 Cash
Flow |
Year
4 Cash
Flow |
Discount
Rate |
|
A |
-100 |
40 |
40 |
40 |
N/A |
.15 |
|
B |
-73 |
30 |
30 |
30 |
30 |
.15 |
2. You
are considering an investment with the following cash flows. If the required
rate of return for this investment is 15.5 percent, should you accept the investment
based solely on the internal rate of return rule? Why? (answer: 17.53%;
Yes, rate<IRR, accept)
3. It will cost $6,000 to acquire an ice cream cart. Cart
sales are expected to be $3,600 a year for three years. After the three
years, the cart is expected to be worthless as the expected life of the
refrigeration unit is only three years. What is the payback period? (answer:
1.67)
4. An
investment project provides cash flows of $1,190 per year for 10 years. If
the initial cost is $8,000, what is the payback period? (answer:
6.72)
5. A
firm evaluates all of its projects by using the NPV decision rule. At a
required return of 14 percent, the NPV for the following project is _____ and
the firm should _____ the project. (answer: 7264.95, accept)
6. Consider the following two mutually exclusive
projects. Use 10% for required rate of return.
What is the NPV of each project? What is the IRR of each project? (answer:
A- 922.78; 15.33%; B- 871.47; 14.68%)
What is the crossover rate for these two projects? (answer:
6.29%)
7. Cash Flow in Period
Initial
Outlay 1 2 3 4
$4,000,000 $1,546,170 $1,546,170 $1,546,170 $1,546,170
The
Internal Rate of Return (to nearest whole percent) i? (answer:
20.03%)
Welltran Corp. can
purchase a new machine for $1,875,000 that will provide an annual net cash
flow of $650,000 per year for five years. The machine will be sold for
$120,000 after taxes at the end of year five. What is the net present value
of the machine if the required rate of return is 13.5%. (Answer:
$447,291.91. Hint: year 5’s cash flow is 650k+120k = 770k)
Class of 4/16 ---
No Class
Final Exam
· will be posted on 4/17 (Friday at 5 pm
and due at 11:59pm, only chapters 8 and 10)
· All homework due
Winner!
Matthew Carbone
|
NET WORTH |
LAST |
TRADES |
TOTAL RETURNS |
|||||
|
$1,861,763.53 |
0.00% |
204 |
$861,763.53 |
|||||
|
NAME |
NET WORTH |
LAST |
TRADES |
TOTAL RETURNS |
||||
|
2 |
$1,470,784.81 |
0.00% |
481 |
$470,784.81 |
||||
|
3 |
$1,362,500.89 |
0.00% |
111 |
$362,500.89 |
||||
|
4 |
$1,318,041.61 |
0.77% |
43 |
$318,041.61 |
||||
|
5 |
$1,203,924.73 |
0.57% |
52 |
$203,924.73 |
||||
NPV,
IRR, Payback Calculator
https://www.jufinance.com/capital/
NPV,
IRR, Payback Excel Template
https://www.jufinance.com/npv_1/
Math Equation
Here’s what each symbol means:
- Ct = net cash inflow for the period
- CO = initial investment
- r =
discount rate
- t =
number of periods
NPV Excel syntax
Syntax
NPV(rate,value1,value2, ...)
Rate is the rate of discount over the
length of one period.
Value1, value2, ... are 1 to 29 arguments
representing the payments and income.
· Value1, value2, ... must be equally spaced in
time and occur at the end of each period. NPV uses the
order of value1, value2, ... to interpret the order of cash flows.
Be sure to enter your payment and income values in the correct sequence.
IRR Excel syntax
Syntax
IRR(values, guess)
Values is an array or a reference to cells that
contain numbers for which you want to calculate the internal rate of return.
Guess is a number that you guess is
close to the result of IRR.
Net Present Value NPV
Explained with
NPV Example for NPV
Calculation (Cartoon, video)
https://www.youtube.com/watch?v=7FsGpi_W9XI
Using Excel for Net Present Values, IRR's and MIRR's
https://www.youtube.com/watch?v=YgVQvn51noc
‘Simple Rules’ for Running a Business
From the 20-page cellphone contract to the five-pound employee
handbook, even the simple things seem to be getting more complicated.
Companies have been complicating
things for themselves, too—analyzing hundreds of factors when making
decisions, or consulting reams of data to resolve every budget dilemma. But
those requirements might be wasting time and muddling priorities.
So argues Donald Sull, a lecturer at the Sloan School
of Management at the Massachusetts Institute of Technology who has also
worked for McKinsey & Co. and Clayton, Dubilier & Rice LLC. In the book Simple
Rules: How to Thrive in a Complex World, out this week from Houghton Mifflin Harcourt HMHC -1.36%, he and Kathleen Eisenhardt of Stanford University claim that
straightforward guidelines lead to better results than complex formulas.
Mr. Sull recently spoke with At Work about
what companies can do to simplify, and why five basic rules can beat a 50-item
checklist. Edited excerpts:
WSJ: Where, in the business context, might “simple rules” help more than a complicated
approach?
Donald Sull: Well, a common decision that people face in
organizations is capital allocation. In many organizations, there will be
thick procedure books or algorithms–one company I worked with had an
algorithm that had almost 100 variables for every project. These are very
cumbersome approaches to making decisions and can waste time. Basically, any
decision about how to focus resources—either people or money or attention—can
benefit from simple rules.
WSJ: Can you give an example of how that simplification
works in a company?
Sull: There’s a German company called Weima GmBH that makes shredders. At one point, they
were getting about 10,000 requests and could only fill about a thousand
because of technical capabilities, so they had this massive problem of
sorting out which of these proposals to pursue.
They had a very detailed
checklist with 40 or 50 items. People had to gather data and if there were
gray areas the proposal would go to management. But because the data was hard
to obtain and there were so many different pieces, people didn’t always fill out the
checklists completely. Then management had to discuss a lot of these
proposals personally because there was incomplete data. So top management is
spending a disproportionate amount of time discussing this low-level stuff.
Then Weima came up with guidelines that the
frontline sales force and engineers could use to quickly decide whether a
request fell in the “yes,” “no” or “maybe” category. They did it with five
rules only, stuff like “Weima had to collect at least 70% of the
price before the unit leaves the factory.”
Or, take Frontier Dental
Laboratories in Canada. They were working with a sales force of two covering
the entire North American market. Limiting their sales guidelines to a few
factors that made someone likely to be receptive to Frontier—stuff like “dentists who have their own
practice” and “dentists with a website”—helped
focus their efforts and increase sales 42% in a declining market.
WSJ: Weima used five factors—is that the
optimal number? And how do you choose which rules to follow?
Sull: You should have four to six rules. Any more than that,
you’ll spend too much time
trying to follow everything perfectly. The entire reason simple rules help is
because they force you to prioritize the goals that matter. They’re easy to
remember, they don’t confuse or stress you, they save time.
They should be tailored to your
specific goals, so you choose the rules based on what exactly you’re trying
to achieve. And you should of course talk to others. Get information from
different sources, and ask them for the top things that worked for them. But
focus on whether what will work for you and your circumstances.
WSJ: Is there a business leader you can point to who has
embraced the “simple rules” guideline?
Donald Sull: Let’s look at when Alex Behring took over America Latina Logistica SARUMO3.BR +1.59%, the Brazilian
railway and logistics company. With a budget of $15 million, how do you
choose among $200 million of investment requests, all of which are valid?
The textbook business-school
answer to this is that you run the NPV (net present value) test on each
project and rank-order them by NPV. Alex Behring knows this. He was at the
top of the class at Harvard Business School.
But instead, he
decided what the most important goals were. You can’t achieve everything at
once. In their case, their priorities were removing bottlenecks on growing
revenues and minimizing upfront expenditure. So when allocating money, they
had a bias for projects that both addressed the bottleneck problem and, for
example, used existing tracks and trains.
Similarly, the global-health arm
of the Gates Foundation gets many, many funding requests. But since they know
that their goal is to have the most impact worldwide, they focus on projects
in developing countries because that’s where the money will stretch farther.