chapter 1- time value of money.ppt

8/9/2019 Chapter 1- Time value of money.ppt

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FINANCIAL

MANAGEMENT


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Title: Financial Management

Objective

In todays dynamic world engineers along with taking technicaldecisions also have to take fnancial decisions. So they need tonderstand! analy"e and inter#ret fnancial data and fnancialisses. This corse will hel# them in nderstanding the conce#tsand #rinci#les o$ acconting and fnance with the s##ort o$so$tware #ackages so that they can make %ick in$ormed fnancial

decisions.&earning Otcomes

't the end o$ the corse the stdents will be able to nderstand:

basic acconting #rinci#les.

how to measre the #er$ormance o$ a bsiness.

how to make and evalate the im#act o$ bsiness decisions at alllevels.

Methodology

The corse will be taght with the aid o$ lectres! case stdies! andse o$ com#ter s#readsheet #rograms. The stdents will sel$)learn

the sage o$ acconting #ackages available in the indstry.


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Te*t +ook Financial Management by M.,. -han! and .-. /ain! Tata Mc0raw

1ill.

Financial Management by rasanna 2handra! Tata Mc0raw 1ill.

+ooks $or 3e$erence rinci#les o$ cor#orate fnance by +realey! 3ichard '. and Myers!

Stewart 2. Tata Mc0raw)1ill blishing 4elhi. Fndamentals o$ fnancial management by +righam! 5gene

F!1oston! /oel F. Thomson 'sia te &td.

Financial management by I.M. andey! 6ikas blishing 1osevt &td.


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Course ContentsTopic-

Introduction to Accounting and financial managementBasic Financial ConceptsLong Term Sources of FinanceCapital Budgeting: Principle Techniques

Concept and measurement of cost of capitalCash Flows for Capital BudgetingFinancial statements & analsisLe!erages and Capital structure decision"or#ing capital management


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Evaluation (Lecture Course)Exam % of Marks Duration

of

Examinat

ion

Coverage / Scope

(i) TEST-1(T-1)

20 1 Hour Syllabus covered upto test 1

(ii) TEST-2 (T-2)

20 1 Hour Syllabus covered after Test-1upto T-2.

(iii)TEST-3(T-3)

35 2 Hours Wole syllabus

(iv)

Teacer!s"ssess#e$t

25

"tte$da$ce% 10&lass 'iscipli$e%5roect *+ui,,es%10

E$tire

Se#ester

"s decided a$d a$$ou$ced by

te teacer co$cer$ed i$ teclass at te bei$$i$ of tecourse


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Time Valueof Money


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The Interest Rate

Obviosly! 3s78!888 today3s78!888 today.

,o already recogni"e that there isTIME VALUE TO MONEYTIME VALUE TO MONEY!!

9hich wold yo #re$er 3s78!8883s78!888

todaytoday or 3s78!888 in ; years3s78!888 in ; yearsows $or time vale

o$ money:2om#onding?the #rocess o$calclating $tre vales o$ cash>ows and

4isconting?the #rocess o$calclating #resent vales o$cash >ows.


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Ty"es of Interest

2om#ond Interest2om#ond Interest

Interest #aid @earnedA on any #reviosinterest earned! as well as on the#rinci#al borrowed @lentA.

Simple InterestSimple Interest

Interest paid $earned% on onl the original

amount or principal 'orrowed $lent%(


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#im"le Interest Formula

FormlaFormla SI B 8@iA@nA

SI: Sim#le Interest

8: 4e#osit today @tB8A

i: Interest 3ate #er eriod

n: =mber o$ Time eriods


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#im"le Interest E$am"le

SI B 8@iA@nA

B [email protected]@DAB 3s7E83s7E8

'ssme that yo de#osit 3s7!888in anaccont earning Csim#le interest $or D

years. What is the accumuate interestat the en o" the #n year$


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#im"le Interest (FV)

%V%V & '() *I& +s,-((() +s,.(

&+s ,-,.(+s ,-,.(

Ftre 6aleFtre 6aleis the vale at some $tretime o$ a #resent amont o$ money! or aseries o$ #ayments! evalated at agiven interest rate.

9hat is the Ftre 6aleFtre 6ale @F6F6A o$ thede#ositows.

The #resent vale o$ cash >ows

occrring in the distant $tre isvery close to "ero.

't 78 interest! the 6 o$ 3s 788

cash >ow occrring ;8 years $romtoday is 3s 8.N;L

t 6 l $


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resent 6ale o$ aer#etity

nn

i

A

i

A

i

APVA

)1(...

)1()1( 2 +++

++

+=

When n=

PVperpetuit= [A/(1i!"[1#1/(1i!"

= A(1/i) = A/i

t 6 l $


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resent 6ale o$ aer#etity

9hat is the #resent vale o$ a #er#etityo$ 3sDC8 #er year i$ the interest rate is

7D #er yearows!

assming a re%ired rate o$ 78:3s. 788 a year $or years 7 throgh! and 3s. D88 a year $rom years Pthrogh 7;.

AS: ),))(.0


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Soltion

),, ),, ),, *,, *,,*,,

, ) * 5 3 . )0

*

chapter 1- time value of money.ppt

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