Financial Modeling & Analysis Exam I

Financial Modeling & Analysis Exam I 3 Equivalent ways of calculating the present value of a single cash flow - 1. The Present Value Formula 2. Present Value PV Excel Function 3. A Present Value Timeline where each column corresponds to a period What is the effect on the FV of a single cash flow when you increase: a.Present Value b.Discount Rate c. Number of Periods - An increase in the FV Explain the Future of Cash Flow Formula - Each cash flow is compounded at a Discounted Rate for the remaining periods Show the Annuity Future Value formula - AFV=APV*(1+r)^t Show the Annuity Present Value formula - APV=AFV/(1+r)^t Explain why dividing the APV by the PVIFA gives the Payment amount of the Annuity - APV=PMT*PVIFA What happens to the PV of a single cash flow when you increase Discount Rate and the Number of Periods - Decreases List the two components of the annuity payment of an amortized loan - a.)Interest b.)Principal State the effect of increasing the payment amount on the APV and AFV - An Increase in the Future Value In which year is the principal component of the payment amount of a 30-year amortized loan at its highest level? Why? - Year 30 because the interest componet is at its lowes State the intuitive interpretation of the following component of the Return on Equity in the DuPont System of Ratio Analysis: EBIT/Sales - Profit Margin State whether a firm's interest-burden ratio will be higher or lower if it pays more interest relative to EBIT. Explain. - Lower because its pretax profit will be lower relative to EBIT. State what Excel's YEARFRAC function calculates - The fraction of a year between two calendar dates Why does the yield curve often have lower yields at the short end due to market segmentation - There is more demand for short-term bonds for cash management, which increases prices, resulting in low yields at the short end State the two dynamic properties regarding