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Ob Management

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Financial Management
Chapter 5 * Future value VS present value * The present value technique uses discounting to find the present value of each cash flow at the beginning of the project. t=0 * The future value technique uses compounding to find the future value of each cash flow at the end of the project’s life

* The future value equation

* ( * FVIF is the FV of 1 dollar at i% per annum after n periods * Future value DEPENDS on the number of periods in which interest can be compounded. * The longer the number of periods, the greater the future value * Also the higher the interest rate, the greater the future value * Total compound interest = Total simple interest + Total interest on interest * Simple interest earned is

* Compounding more frequently than once a year

* The present value equation

* * PVIF is the PV of 1 dollar at i% per annum after n periods * The larger the number of periods the smaller the present value * The higher the interest rate, the smaller the present value

* The relationship between time, the discount rate,and present value * The further in the future a dollar will be received, the less it is worth today * The higher the discount rate, the lower the present value of a dollar

* The rule of 72

* Compound Frequency

Chapter 6 * Annuities
A series of equally spaced and level cash flows extending over a finite number of periods * Ordinary Annuity
An annuity in which payments are made at the end of the periods * Future value of an ordinary annuity

* Present value of an Ordinary annuity

* Annuity Due
An annuity in which payments are made at the beginning of each period * FV of Annuity Due = FV of ordinary Annuity x (1+i)

* PV of Annuity Due = PV of Ordinary Annuity x (1+i)

* Application of Annuities

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