International studies FBE

STUDY YEAR 2019-2020

EXAM : FINANCIAL MANAGEMENT 2

MODULECODE/STUDYGUIDE NUMBER(SIS): 2019FM2_TS

STUDY + YEAR : IB YEAR 2

DATE : 8 MAY 2020

TIME (from - till) : 15:00-17:00HRS

NUMBER OF PAGES (including front page) : 10

ALLOWED : HVA CALCULATOR + ROUGH PAPER

USE OF CALCULATOR : HVA CALCULATOR (CASIO FX-82MS)

LECTURERS : RALF JACOBS, JOHAN KLOOSTERMAN,

JONATHAN POWNALL, ZEESHAN SHAHZAD

SPECIAL NOTE :

- WRITE DOWN YOUR NAME, STUDENT ID, CLASS & LECTURER NAME ON THE ANSWER SHEET
PROVIDED IN EXCEL. FOLLOW THE INSTRUCTIONS ON THE ANSWER SHEET IN EXCEL.

- There are 40 multiple choice questions. In order to pass the exam, you will need to answer 25
questions correctly.

GOOD LUCK WITH YOUR EXAM!

 1. FINANCIAL STATEMENTS (30 POINTS)
You want to prepare the financial statements for Rommel Corporation. You are given the balance sheets per
31 December 2018 and 2019 below.

Balance Sheet
(in $ 1,000) 2019 2018
Cash 24,000 2,000
Marketable securities 0 18,000
Accounts receivable 43,500 41,900
Inventories 59,700 61,700
Total current assets 127,200 123,600
Land and buildings 125,000 105,000
Machinery and equipment 400,600 356,800
Furniture and fixtures 30,100 28,900
Vehicles 2,700 3,200
Other (including financial leases) 1,100 1,100
Total gross fixed assets (at cost) 559,500 495,000
Less: Accumulated depreciation 168,300 148,500
Net fixed assets 391,200 346,500
Total assets 518,400 470,100

Accounts payable 8,800 10,900

Notes payable 0 20,000
Accruals 7,600 5,400
Total current liabilities 16,400 36,300
Long-term debt (including financial leases) 130,000 150,000
Total liabilities 146,400 186,300
Preferred stock, cumulative 4% $100 par, 500,000 shares authorised and issued 50,000 50,000
Common stock, $20 par, 1,000,000 shares authorised,
shares issued and outstanding in 2019: 560,000, in 2018: 530,000 11,200 10,600
Paid-in capital in excess of par on common stock 181,400 157,400
Retained earnings 129,400 65,800
Total stockholders' equity 372,000 283,800
Total liabilities and stockholders' equity 518,400 470,100

Moreover, the following additional information is available for 2019:

• Sales revenues amounted to $ 546,000,000.
• Cost of goods sold amounted to 55% of sales revenues.
• Selling expense amounted to $ 49,100,000, general and administrative expenses amount to $
27,500,000, while other operating expenses amounted to $ 5,800,000.
• Depreciation expense amounted to 4% of total gross fixed assets per 31 December 2018.
• Rommel Corporation incurred an interest expense equal to 5% of interest-bearing debt per 31
December 2018. Interest-bearing debt is made up of notes payable and long-term debt.
• Taxes amounted to 20% of net profits before taxes.
• Rommel Corporation paid 40% of net income for common stockholders in dividends to common
stockholders.
• Net income for common stockholders amounted to $ 106,000,000.

Answer questions 1 to 7 based on the information above. You may need to construct (part of) an income
statement for the year 2019 to answer some of the questions.

1. Calculate the gross profits for Rommel Corporation in 2019:

a. $ 245,700,000
b. $ 300,300,000
c. $ 443,800,000
d. $ 463,600,000

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 2. Calculate the depreciation expenses for 2019:
a. $ 13,860,000
b. $ 15,648,000
c. $ 19,800,000
d. $ 22,380,000

3. Calculate the operating profit (=income from operations or EBIT) for 2019:
a. $ 143,500,000
b. $ 163,300,000
c. $ 443,800,000
d. $ 463,600,000

4. Calculate the interest expenses for 2019:

a. $ 6,500,000
b. $ 7,175,000
c. $ 7,500,000
d. $ 8,500,000

5. Calculate the tax expenses for 2019:

a. $ 27,000,000
b. $ 28,700,000
c. $ 70,666,667
d. $ 109,200,000

6. Calculate the addition to retained earnings for 2019:

a. $ 42,400,000
b. $ 48,300,000
c. $ 63,600,000
d. $ 88,200,000

7. Calculate the dividend per common share for 2019:

a. $ 4.00
b. $ 75.71
c. $ 113.57
d. $ 189.29

Answer questions 8 to 12 based on the information above. In addition, use the information in the table below.

Statement of Cash Flows

(in $ 1,000) 2019
Cash Flow from Operating Activities
Net profits after taxes ?
Depreciation ?
Change in accounts receivable A
Change in inventories ?
Change in accounts payable B
Change in accruals ?
Cash provided by operating activities ?
Cash Flow from Investment Activities
Change in gross fixed assets C
Change in equity investments in other firms 0
Cash provided by investing activities ?
Cash Flow from Financing Activities
Change in notes payable ?
Change in long-term debts D
Change in stockholders' equity ?
Dividends paid ?
Cash provided by investing activities ?
Net change in cash and marketable securities E

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 8. Calculate the amount that corresponds to letter A in the table above:
a. -$ 1,600
b. +$ 1,600
c. +$ 41,900
d. +$ 43,500

9. Calculate the amount that corresponds to letter B in the table above:

a. -$ 2,100
b. +$ 2,100
c. +$ 8,800
d. +$ 10,900

10. Calculate the amount that corresponds to letter C in the table above:
a. -$ 84,300
b. -$ 64,500
c. +$ 64,500
d. +$ 84,300

11. Calculate the amount that corresponds to letter D in the table above:
a. -$ 20,000
b. +$ 20,000
c. +$ 130,000
d. +$ 150,000

12. Calculate the amount that corresponds to letter E in the table above:
a. -$ 2,000
b. +$ 2,000
c. +$ 4,000
d. +$ 24,000

2. FINANCIAL RATIOS (20 POINTS)

You want to assess the financial performance of Rommel Corporation in 2019, using financial ratios (see the
appendix for selected formulas). For problem 2, you are supposed to use the financial information provided in
problem 1, as well as the following additional information: the price of common stock per 31 December 2019
was $ 965.80 per share.

13. Calculate the current ratio for 2019:

a. 0.48
b. 3.40
c. 4.12
d. 7.76

14. Calculate the quick ratio for 2019:

a. 0.48
b. 3.40
c. 4.12
d. 7.76

15. Calculate the net profit margin for 2019:

a. 0.194%
b. 0.198%
c. 19.4%
d. 19.8%

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 16. Calculate the return on equity for 2019:
a. 28.5%
b. 29.0%
c. 32.9%
d. 33.5%

17. Calculate the market-to-book ratio for 2019:

a. 0.60
b. 0.69
c. 1.45
d. 1.68

A number of selected ratios have been calculated for Rommel in 2019, as well as the average for its four
closest competitors.

Financial Ratios Rommel Industry average

Average Collection Period (days) 29.08 25.00
Average Payment Period (days) 15.28 50.00
Debt Ratio 28.2% 36.0%
Debt-to-Equity Ratio 45.5% 56.4%
Financial Leverage Multiplier 1.61 1.56
Gross Profit Margin 45.0% 40.0%
Inventory Turnover 5.03 4.87
Operating Profit Margin 26.3% 8.0%
Price-Earnings Ratio 5.10 17.59
Return on Total Assets 20.4% 5.6%
Times-Interest-Earned 16.88 8.00
Total Asset Turnover 1.05 1.01

18. When evaluating the financial performance of Rommel Corporation in 2019 in comparison to its
industry peers in terms of profitability ratios and debt ratios, indicate which of the following is most
accurate:
a. Rommel outperforms its peers both in terms of profitability ratios and debt ratios.
b. Rommel outperforms its peers in terms of debt ratios, but not in terms of profitability ratios.
c. Rommel outperforms its peers in terms of profitability ratios, but not in terms of debt ratios.
d. Rommel underperforms its peers both in terms of profitability ratios and debt ratios.

19. Using the table above, indicate which of the following is most accurate:
a. Rommel outperforms its peers both in terms of average collection period and total asset turnover.
b. Rommel outperforms its peers in terms of average collection period, but not in terms of total asset
turnover.
c. Rommel outperforms its peers in terms of total asset turnover, but not in terms of average collection
period.
d. Rommel underperforms its peers both in terms of average collection period and total asset turnover.

20. When applying the modified DuPont analysis to compare the return on common equity of Rommel in
2019 to its industry peers, indicate which of the following is most accurate:
a. Rommel’s return on common equity is higher than the industry average, despite the higher financial
leverage multiplier of Rommel.
b. Rommel’s return on common equity is higher than the industry average, to a small extent driven by
Rommel’s higher financial leverage multiplier.
c. Rommel’s return on common equity is lower than the industry average, due to the higher financial
leverage multiplier of Rommel.
d. Rommel’s return on common equity is lower than the industry average, on which Rommel’s higher
financial leverage multiplier had little impact.

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 3. TIME VALUE OF MONEY (15 POINTS)
For problem 3, selected formulas are available in the appendix.

21. You deposit EUR 500 in your savings account today. The account earns you 5% in annual interest.
You do not make any further deposits or withdrawals. You will leave your money in the account for 6
years. Calculate the amount that is in your account after 6 years:
a. EUR 350.00
b. EUR 373.11
c. EUR 650.00
d. EUR 670.05

22. You aim to have EUR 100,000 in 10 years from now, to start your own business. You will earn 4% in
annual interest on your savings. After an initial deposit today, you do not make any further deposits or
withdrawals. Calculate the amount you need to deposit today to meet your objective:
a. EUR 60,000
b. EUR 67,556
c. EUR 68,301
d. EUR 71,429

23. You want to invest your current savings of EUR 1,000 in Amazon stock, with the aim to grow your
wealth to EUR 12,000. You expect Amazon to generate 30% return per year (=interest rate). You do
not make any further deposits or withdrawals. Calculate the time it will take to meet your objective:
a. 9.14 years
b. 9.47 years
c. 21.58 years
d. 24.29 years

24. You want to increase your savings from EUR 1,000 to EUR 2,000 in 10 years from now. You do not
make any further deposits or withdrawals. Calculate the annual interest rate you need to obtain, to
meet your objective:
a. 6.70%
b. 7.18%
c. 7.27%
d. 10.00%

25. You want to save in order to travel to Australia in 5 years from now. You want to save EUR 850 at the
beginning of each of the coming 5 years, starting today. You will earn 6% interest per year. Calculate
the amount you will have saved after 5 years:
a. EUR 3,580.51
b. EUR 3,795.34
c. EUR 4,791.53
d. EUR 5,079.02

26. You take out a EUR 25,000 annuity business loan, against an annual interest rate of 10%. The loan
will be settled with 5 payments of equal size, at the end of each of the coming five years. Calculate
the payment you will make at the end of each year:
a. EUR 4,094.94
b. EUR 5,995.40
c. EUR 6,594.94
d. EUR 7,500.00

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 4. CAPITAL BUDGETING (20 POINTS)
Patton Corporation is considering two mutually exclusive investment alternatives, under code names
Symphony and Philharmonic. Patton has determined its discount rate (=weighted average cost of capital or
WACC) to be 10%. The following information is available about the cash flows of the investment alternatives
(in EUR millions):

Year Project Symphony Project Philharmonic

0 -280 -280
1 +30 +90
2 +60 +90
3 +90 +90
4 +120 +90
5 +180 +90

27. Calculate the cash payback period of Project Symphony:

a. 1.83 years
b. 3.16 years
c. 3.83 years
d. 4.00 years

28. Calculate the cash payback period of Project Philharmonic:

a. 3.00 years
b. 3.11 years
c. 3.89 years
d. 4.00 years

29. Calculate the net present value of Project Symphony:

a. EUR 58 million
b. EUR 200 million
c. EUR 338 million
d. EUR 480 million

30. Calculate the net present value of Project Philharmonic:

a. EUR 61 million
b. EUR 170 million
c. EUR 341 million
d. EUR 450 million

31. Indicate, which statement most accurately uses the available information to come to an appropriate
investment decision:
a. The investor should select the project with the highest cash payback period.
b. The investor should select the project with the highest net present value.
c. The investor should select the project with the lowest cash payback period.
d. The investor should select the project with the lowest net present value.

32. Suppose that the discount rate (=WACC) would dramatically drop, due to a drop in interest rates, to a
level of just 1.0%. Indicate which statement is most accurate:
a. The choice of the project could be affected; both projects will become less attractive, a calculation is
necessary to determine the exact impact.
b. The choice of the project could be affected; both projects will become more attractive, but this applies
even more to Symphony, given its high cash flows towards the end of the project.
c. The choice of the project will not be affected; both projects will become more attractive, but this
applies even more to Philharmonic, given that its cash flows are evenly distributed.
d. The choice of the project will not be affected, as the cash flows do not change.

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 33. Suppose the two projects would be independent, instead of mutually exclusive, and Patton has ample
financing available. Indicate which statement is most accurate:
a. This could change the investment decision: a calculation of the profitability index would be required to
select the most appropriate project.
b. This would change the investment decision: as both projects have a cash payback period in excess of
3 years, both should be rejected.
c. This would change the investment decision: as both projects have a positive net present value, both
should be selected.
d. This would not change the investment decision: the projects’ characteristics do not change.

34. Indicate which of the following statements is the most accurate:

a. The cash payback period is a complex capital budgeting technique, which is difficult to interpret.
b. The cash payback period potentially neglects cash flows towards the end of a project.
c. The net present value method does not appropriately take the time value of money into consideration.
d. The net present value method is based on an arbitrary decision criterion.

5. WORKING CAPITAL MANAGEMENT (15 POINTS)

Montgomery Corporation aims to manage its cash efficiently. Relevant information from the last annual report
is given in the table below. For problem 5, work with a 365-day year and assume that purchases are equal to
costs of goods sold.

Accounts Payable (end of the year) $ 900,000

Accounts Receivable (end of the year) $ 6,000,000
Cost of Goods Sold $ 10,683,000
Inventory (beginning of the year) $ 2,671,000
Inventory (end of the year) $ 2,938,000
Sales $ 36,500,000

35. Calculate the average age of the inventory:

a. 31 days
b. 59 days
c. 100 days
d. 205 days

36. Calculate the average payment period:

a. 9 days
b. 31 days
c. 59 days
d. 60 days

37. Calculate the operating cycle:

a. 91 days
b. 129 days
c. 160 days
d. 191 days

38. Calculate the cash conversion cycle:

a. 91 days
b. 129 days
c. 160 days
d. 191 days

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 39. Suppose Montgomery is able to reduce the average collection period by 12 days, ceteris paribus.
Calculate the reduction in accounts receivable:
a. $ 1,200,000
b. $ 1,266,667
c. $ 12,000,000
d. $ 12,666,667

40. De Gaulle Corporation purchases 1,200,000 units per year of Component XYZ. The fixed costs per
order amount to $ 25.00. The annual carrying cost of the item is 27% of its value. The cost per unit of
the item is $ 2.00. Calculate the economic order quantity (EOQ):
a. 5,692 units
b. 7,454 units
c. 10,541 units
d. 111,111,111 units

----------------------------------------------------END OF THIS EXAM---------------------------------------------------

APPENDIX: SELECTED FORMULAS

1. Financial Ratio Analysis

𝟑𝟑𝟑𝟑𝟑𝟑 × 𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬 𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰

𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨 𝑨𝑨𝑨𝑨𝑨𝑨 𝑶𝑶𝑶𝑶 𝑻𝑻𝑻𝑻𝑻𝑻 𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰 =
𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪 𝑶𝑶𝑶𝑶 𝑮𝑮𝑮𝑮𝑮𝑮𝑮𝑮𝑮𝑮 𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺

𝟑𝟑𝟑𝟑𝟑𝟑 × 𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨 𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹

𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨 𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪 𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷 =
𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨 𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺

𝟑𝟑𝟑𝟑𝟑𝟑 × 𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨 𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷

𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨 𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷 𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷 =
𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨 𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷

𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪 𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬
𝑩𝑩𝑩𝑩𝑩𝑩𝑩𝑩 𝑽𝑽𝑽𝑽𝑽𝑽𝑽𝑽𝑬𝑬 𝑷𝑷𝑷𝑷𝑷𝑷 𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺 =
𝑵𝑵𝑵𝑵𝑵𝑵𝑵𝑵𝑵𝑵𝑵𝑵 𝑶𝑶𝑶𝑶 𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺 𝑶𝑶𝑶𝑶 𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪 𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺 𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶

𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪 𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨
𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪 𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹 =
𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪 𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳

𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻 𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳
𝑫𝑫𝑫𝑫𝑫𝑫𝑫𝑫 𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹 =
𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻 𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨

𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻 𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳
𝑫𝑫𝑫𝑫𝑫𝑫𝑫𝑫 − 𝑻𝑻𝑻𝑻 − 𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬 𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹 =
𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪 𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬

𝑵𝑵𝑵𝑵𝑵𝑵 𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰 𝑭𝑭𝑭𝑭𝑭𝑭 𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪 𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺

𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬 𝑷𝑷𝑷𝑷𝑷𝑷 𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺 =
𝑵𝑵𝑵𝑵𝑵𝑵𝑵𝑵𝑬𝑬𝑬𝑬 𝑶𝑶𝑶𝑶 𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺 𝑶𝑶𝑶𝑶 𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪 𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺 𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶

𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻 𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨
𝑭𝑭𝑭𝑭𝑭𝑭𝑭𝑭𝑭𝑭𝑭𝑭𝑭𝑭𝑭𝑭𝑭𝑭 𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳 𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴 =
𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪 𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬

𝑮𝑮𝑮𝑮𝑮𝑮𝑮𝑮𝑮𝑮 𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷
𝑮𝑮𝑮𝑮𝑮𝑮𝑮𝑮𝑮𝑮 𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷 𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴 =
𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺

𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪 𝑶𝑶𝑶𝑶 𝑮𝑮𝑮𝑮𝑮𝑮𝑮𝑮𝑮𝑮 𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺

𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰 𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻 =
𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰
9/10
 𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴 𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷 𝑷𝑷𝑷𝑷𝑷𝑷 𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺 𝑶𝑶𝑶𝑶 𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪 𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺
𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴 − 𝑩𝑩𝑩𝑩𝑩𝑩𝑩𝑩 𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹 =
𝑩𝑩𝑩𝑩𝑩𝑩𝑩𝑩 𝑽𝑽𝑽𝑽𝑽𝑽𝑽𝑽𝑽𝑽 𝑷𝑷𝑷𝑷𝑷𝑷 𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺 𝑶𝑶𝑶𝑶 𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪 𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺

𝑵𝑵𝑵𝑵𝑵𝑵 𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰 𝑭𝑭𝑭𝑭𝑭𝑭 𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪 𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺

𝑵𝑵𝑵𝑵𝑵𝑵 𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷 𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴 =
𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺

𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶 𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷
𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶 𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷 𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴 =
𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺

𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴 𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷 𝑷𝑷𝑷𝑷𝑷𝑷 𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺

𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷 − 𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬 𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹 =
𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬 𝑷𝑷𝑷𝑷𝑷𝑷 𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺

𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪 𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨 − 𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰

𝑸𝑸𝑸𝑸𝑸𝑸𝑸𝑸𝑸𝑸 𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹 =
𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪 𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳𝑳

𝑵𝑵𝑵𝑵𝑵𝑵 𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰 𝑭𝑭𝑭𝑭𝑭𝑭 𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪 𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺

𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹 𝑶𝑶𝑶𝑶 𝑬𝑬𝑬𝑬𝑬𝑬𝑰𝑰𝑰𝑰𝑰𝑰 =
𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪 𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬

𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹 𝑶𝑶𝑶𝑶 𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬 = 𝑵𝑵𝑵𝑵𝑵𝑵 𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷 𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴 × 𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻 𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨 𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻 × 𝑭𝑭𝑭𝑭 𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴

𝑵𝑵𝑵𝑵𝑵𝑵 𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰 𝑭𝑭𝑭𝑭𝑭𝑭 𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪 𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺

𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹 𝑶𝑶𝑶𝑶 𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻 𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨 =
𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻 𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨

𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹 𝑶𝑶𝑶𝑶 𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻 𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨 = 𝑵𝑵𝑵𝑵𝑵𝑵 𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷 𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴 × 𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻 𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨 𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻

𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬
𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑺𝑺 − 𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰 − 𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬 =
𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰
𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺
𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻 𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨 𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻 =
𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻𝑻 𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨

2. Time Value of Money

𝟏𝟏
𝟏𝟏 −
(𝟏𝟏 + 𝒓𝒓)𝒏𝒏
𝑷𝑷𝑷𝑷 𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶 𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨 = 𝑪𝑪𝑪𝑪 ×
𝒓𝒓

𝑷𝑷𝑷𝑷 𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨 𝑫𝑫𝑫𝑫𝑫𝑫 = 𝑷𝑷𝑷𝑷 𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶 𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨 × (𝟏𝟏 + 𝒓𝒓)

(𝟏𝟏 + 𝒓𝒓)𝒏𝒏 − 𝟏𝟏
𝑭𝑭𝑭𝑭 𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶 𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝒏𝒏 = 𝑪𝑪𝑪𝑪 ×
𝒓𝒓

𝑭𝑭𝑽𝑽 𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨 𝑫𝑫𝑫𝑫𝑫𝑫 = 𝑭𝑭𝑭𝑭 𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶 𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨𝑨 × (𝟏𝟏 + 𝒓𝒓)

𝑭𝑭𝑭𝑭𝒏𝒏
𝐥𝐥𝐥𝐥𝐥𝐥 � �
𝒏𝒏 = 𝑷𝑷𝑷𝑷
𝐥𝐥𝐥𝐥𝐥𝐥 (𝟏𝟏 + 𝒓𝒓)

𝟏𝟏
𝑭𝑭𝑭𝑭𝒏𝒏 𝒏𝒏
𝒓𝒓 = � � − 𝟏𝟏
𝑷𝑷𝑷𝑷

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