maths:financial
a brief summary of financial equations
Introduction
Simple Interest
Compound Interest
Nominal annual interest rate
Present and Future values
Annuities
Capital Investment Assessment Methods:
Payback period:
Average Rate Of Return: = av. after tax profits / av. investment
Discounted Cash Flow Methods:
recognises time value of money;
appropriate discount factor is max. rate of return required (RROR) by firm to invest in such a project.
a) NPV = (PV cash flows discounted at RROR) - initial investment (II)
if < 0, then reject project!
= sum (cash flowi * (1+k)^-i - II, k = RROR, i = cash flow period;
b) IRR = internal rate of return
= discount rate that equates PV cash flows with initial investment
ie. solves for k by making II = PVcash flows;
if IRR < RROR then project is rejected.
c) PI = profitability index = benefit-cost ratio
Modified Internal Rate Of Return (MIRR):
Risk Assessment:
maths/financial.txt · Last modified: 2021/07/24 11:38 by gary1