Finance, Part 1
This week, we will begin building a foundation of knowledge in financial management with a special focus on the time value of money, risk, return, capital asset planning, and the capital budgeting process.
After completing this lesson, you should be able to:
- Compute the future value of an investment made today
- Compute the present value of cash to be received at some future date
- Compute the return on an investment
- Calculate the interest earned on an investment
- Describe two types of annuities
- Explain EAR and APR
- Explain the capital asset planning model (CAPM)
- Compare three approaches to estimate expected return
- Compare and contrast systematic and unsystematic risk
- Explain the importance of capital budgeting
- Identify the three decision criteria to evaluate capital budgeting projects
- Describe the NPV method and its advantages
- Describe the payback method and its shortcomings
- Describe the IRR method and its strengths & weaknesses
- Describe the profitability index
- Use a financial calculator
- Describe the process for estimating the cash flows from investing in a project
- Describe a process for predicting cash flows
Professor's Notes
Time Value of Money
Here you will meet your instructor for the finance segment of the course, Ami Dutta. You will also begin using a financial calculator and explore the time value of money.
Risk, Return and Capital Asset Pricing Model
In this lecture, we will examine three ways to estimate expected return. We will also discuss the capital asset planning model (CAPM).
Capital Budgeting Process and Decision Criteria
This lecture examines the process of investing in long term assets that will generate cash flows into the future and help to increase the value of the firm.
Cash Flow and Capital Budgeting
In this lecture, we will focus on the process by which a finance manager estimates the cash flows from investing in a project.
Read Textbook
BUS 5602: Essentials of Business Development 2
Introduction to Corporate Finance
- Chapter 3: The Time Value of Money
- Chapter 8: Capital Budgeting Process and Decision Criteria
- Chapter 9: Cash Flow and Capital Budgeting
Read Case
“HBS Hansson Private Label, Inc."
In capital budgeting, the financial manager identifies investment opportunities that are worth more to the company than they cost to acquire. For the company you selected for your business plan:
- What process do you use to evaluate capital investment decisions?
- What capital budgeting methods do you use (e.g. payback period, IRR, NPV)?
- Do you think these are appropriate methods for your company?
Use the Harvard Business Case, “HBS Hansson Private Label, Inc.” as the basis for answering the following questions:
- Estimate the project’s NPV
- Do you recommend Tucker Hansson to proceed with the investment?
Post your replies to this week's discussion board.
Due Sunday, 11:59 p.m., ET
Suggested Practice Problems
- Chapter 3 Problems 3-1, 3-3, 3-10, 3-16, 3-30, and 3-34
- Chapter 8 Problems 8-2 (a, b, c, and e), 8-6, 8-10, 8-15, and 8-18
- Chapter 9 Problems 9-4, 9-8, and 9-18