Download - 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
*