TIME VALUE
Single Sum Cash Flow
FV = C(1+r)T
PV= C/(1+r)T
Annuities and Perpetuities
PV of ordinary annuity C/r [1-(1/(1+r)T]
FV of ordinary annuity: C/r[(1+r)T-1)]
PV of growing annuity C/(r-g)[1-{(1+g)/(1+r)}T]
FV of annuity =PV of annuity (1+r)ⁿ
PV of Perpetuity: C/r
PV of growing Perpetuity: C/(r-g)
FV of Perpetuity or Growing Perpetuity: FV = ∞
FORMULA GIVES YOU VALUE THE PERIOD BEFORE THE FIRST CASH FLOW
Annuity Due Adjustment Factor
FV of annuity due: (FV of ORDINARY ANNUITY)*(1+r)
PV of annuity due: (PV of ORDINARY ANNUITY)*(1+r)
Continuous Compounding
Future value of $1 received today after “T” periods: $1(erT), where e=2.718
Compounding
Future Value C[1+(r/m)]mT
Effective Annual Interest rate (EAIR or EAR) and SAIR
The effective annual interest rate when “r” is the stated interest rate and “m” is the compounding period, m in the squared part of the EAR = # of years x comp period: EAR = [1+(r/m)]m-1 & SAIR =[(m√EAR+1)-1]m
Stated Annual Interest Rate (SAIR) = APR: needs compound interval
Effective Annual Interest Rate (EAR or EAIR): no compound int. required
BANKRUPTCY – Causes: Size, Leverage, Dividend History, Earnings
3 Options for Creditors: Liquidate, Take over, Reorganize
Chapter 7 Bankruptcy 1) Filing of Petition, 2) Order of Relief 3) Automatic Stay of Proceedings 4)
Interim Trustee Appointed 5) Assets Liquidated 6) Proceeds Distributed to Creditors
Chapter 11 Bankruptcy 1) Filing of Petition 2) Order of Relief 3) Automatic Stay of Proceedings 4)
Reorganized Plans (Exclusivity Period - Debtor in Possession (DIP), Alternative Plans) 5) Approval
of Plans 6) Confirmation of Plan 7) Plan enacted
The Absolute Priority Rule 1) DIP Loans 2) Certain obligations incurred after filing for Chapter 11,
3) Unsecured Claims for employee compensation 4) Unsecured claims for employee benefit plans 5)
Secured creditors 6) Senior creditors 7) Unsecured creditors (other than senior creditors) 8)
Subordinated debt claims 9)...