Easy
The owner has unlimited personal liability for the firm's debts, and the life of this entity is limited to the life of the owner.
What is Sole Proprietorship?
1. People invest and save their money.
2. Through loans and stock, that money flows to companies who use it to fund growth through new products, generating profits and wages.
3. The money then flows back to the savers and investors.
What is the Financial Cycle?
How much is $1,500 in 48 months worth today, assuming interest rate is 5%?
PV = $1228.61
Accounting reports issued periodically that present past performance information and a snapshot of the firm's assets and the financing of those assets.
What are financial statements?
In competitive markets, securities that produce exactly the same cash flows must have the same price.
What is Law of One Price?
An S-Corp earns $15 per share before taxes. If corporate tax rate is 35% and tax rate on dividend and nondividend income is 25%. How much does each shareholder earn after all taxes are paid?
Earnings after tax = $11.25
The total amount of interest that will be earned at the end of one year and takes into account the effect of compounding.
What is Effective Annual Rate (EAR)?
The value of the underlying business assets, unemcumbered by debt and separate from any cash and marketable securities.
What is Enterprise Value?
Suppose your bank account pays interest monthly with an effective 3-year rate of 25%. What amount of interest will you earn each month?
monthly discount rate = 0.6218%
1. Only values at the same point in time can be compared or combined
2. To calculate a cash flow's future value, we must compound it
3. To calculate the present value of a future cash flow, we must discount it
What are the Three Rules of Valuing Cash Flows?
??? = Payment - Interest
A businessman wants to buy a truck. The dealer offers to sell the truck for either $120,000 now, or six yearly payments of $25,000. Which of the following is closest to the interest rate being offered by the dealer?
I/Y = 6.77%