Bus 170 Corporate Finance

get 173A course reader @ Maple Press on San Carlos Street between 1oth & 11th

Not to put all eggs in one Basket. What about true love?

Financial Statements
Cash flow
Balance Sheet
Income Statement

TOPICS
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Time & Risk
Time value of Money
Debt and Equity
Cost of Capital
Capital budgeting process - determine investment good or not
Capital Structure - How much is funded by debt and by Equity

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Time Value of Money - as time goes by, money can grow

Investment->

Future Value - Amount an Investment worth in the future
1000$ one year 5% FV = 1000x(1+0.05) = 1050
1000$ two year?
3 yrs = 1000x(1.05)^3

FV_n = C * (I+r)^n

Compounding Interest

Present Value : What is the money that occurs in the future worth today?

PV = FV_n / (1+r)^n
PV = PV(1+r)^n

$500 in 5 yrs. 10%
pv = 500/ 1.1^5 = 310.46

$500 in 10 yrs
pv= 500/1.1^10 = 192.77


FV_n r fixed then n increase, PV decrease

FV_n n fixed, then R inrease, PV decrease