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By Harold Bierman

This booklet introduces company monetary administration, according to the fundamental capital budgeting framework and the time price of cash. It specializes in theoretical formulations and proper program of monetary options that might support increase managerial and fiscal judgements. in accordance with primary ideas of accounting and finance like time price of cash and after-tax funds flows, it introduces readers to real-world constraints and complexities within the fields.

Written in an easy and available demeanour, this ebook will be learn through scholars of finance and accounting classes, enterprise pros and basic public alike.

Readership: Undergraduates and graduates in economics & finance; company pros drawn to mergers and organizations.

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Extra resources for An Introduction to Accounting and Managerial Finance: A Merger of Equals

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What would be the annual amount if the first of 10 payments were received immediately? 5. 05 time value of money. We have a debt to pay and are given a choice of paying $1,000 now or some amount X five years from now. What is the maximum amount that X can be for us to be willing to defer payment for five years? November 6, 2009 13:43 spi-b811 24 9in x 6in b811-ch02 An Introduction to Accounting and Managerial Finance 6. We can make an immediate payment now of $10,000 or pay equal amounts of R for the next five years (first payment due one year from now).

The sum of the items in this column is (1 + r)B(n, r). Note that (1 + r)0 = 1 and that all except two of the November 6, 2009 13:43 spi-b811 9in x 6in The Time Value of Money b811-ch02 27 amounts are in both columns. Taking the difference between the sum of the two columns and solving for B(n, r) gives the formula we wish to derive. Time (1) (2) 1 2 3 · · · n−1 n (1 + r)−1 (1 + r)−2 (1 + r)−3 · · · (1 + r)−n+1 (1 + r)−n (1 + r)0 (1 + r)−1 (1 + r)−2 · · · (1 + r)−n+2 (1 + r)−n+1 B(n, r) (1 + r)B(n, r) Column (2) minus column (1) yields (1 + r)B(n, r) − B(n, r) = 1 − (1 + r)−n .

For example, what is the annual equivalent over 20 years of $100,000 received today if the time value of money is 10 percent? 7) for the annual cash flow: C= PV . 9) That is, to find the annual equivalent, C, of a present sum, PV, that sum is divided by the annuity factor, B(n, r), where r is the time value of money and n is the number of years over which the annual equivalent is to be determined. Calculations of this type are particularly useful in the management of financial institutions such as insurance companies or banks, where customers make periodic payments over an extended time period in return for a lump-sum immediate loan.

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