Samenvatting Financial Management And Tax

Financial Management &
Accounting
Summary exam part 1 – Evi Bekooij

Table of Contents
Maths of finance 1....................................................................1
Revision of time value of money.......................................................1
Simple vs compound interest rate investment...................................1
Formulas.........................................................................................2
AER................................................................................................2
Maths of finance 2....................................................................3
Constant immediate annuity/perpetuity............................................3
Decision making 1.....................................................................4
NPV................................................................................................4
Decision making 2.....................................................................5
Payback method..............................................................................5
Internal rate of return.....................................................................6
Profitability index............................................................................8
Overview of all decision-making possibilities....................................8
Accounting rate of return.................................................................8
Working capital management....................................................9
Net working capital/cash conversion cycle........................................9
Formulas.......................................................................................10




Maths of finance 1
Revision of time value of money

Investment = a certain amount of money moves forwards

Discount = a certain amount of money moves backwards

Simple vs compound interest rate investment

Simple: lineal  FV = FV =PV (1+ Rt )

Compound: exponential  FV =PV (1+r )t

, Formulas
FV =PV (1+r )t ¿ FV ¿
FV
PV = ¿ PV ¿
( 1+ r )t
r=
√
t FV

PV
−1 ¿ rate ¿


t=
ln ( )
FV
PV ¿ nper ¿
ln ( 1+r )

With periodicity:
f = frequency

- Semesterly basis: twice per year (f=2)
- Quarterly basis: four times per year (f=4)
- Monthly basis: twelve times per year (f=12)
- FV =PV 1+ ( )
r t·f
f

- Continuously basis: twelve times per year (f=12)

- FV =PV · e r·t

AER
AER = annual equivalent rate  A E R= 1+ ( )r f
f
−1


So, the AER (Annual Equivalent Rate) can be found by comparing these
two equivalent operations:


( )
f
r
So, in general: FV =PV 1+
f

( ) ( )
f
r r f
FV =PV (1+ A E R )1 so: 1+ A E R= 1+ A E R= 1+ −1
f f
11236=10000 (1+
2 )
2
0.12


so: 1+ A E R=( 1+
2 )
2
1 0.12
11236=10000 ( 1+ A E R ) =1.1236 A E R=0.1236=12.36 %

11255=10000 (1+
4 )
4
0.12


so: 1+ A E R=(1+
4 )
4
0.12
11255=10000 ( 1+ A E R )1 =1.1255 A E R=0.1255=12.55 %

11268=10000 (1+
12 )
12
0.12


so: 1+ A E R=(1+
12 )
12
0.12
11268=10000 ( 1+ A E R )1 =1.1268 A E R=0.1268=12.68 %