Topic Name Description
Course Introduction Page Course Syllabus
Page Course Terms of Use
1.1.1: Ethics Page Boundless: "Finance: Chapter 1, Section 4: Ethics: An Overview"

We begin this course with an examination of the ethical considerations involved in finance. You will want to read carefully so that you can differentiate between ethics and morals. Be sure you can explain why it is important for individuals working in the financial sector to keep organizational, professional, and personal ethical behavior front-and-center.

1.1.2: Financial Decisions: Investment and Financing Page Boundless: "Finance: Chapter 1, Section 1: Types of Financial Decisions: Investment and Financing"

As you read, ask yourself, "What criteria do corporations use to make financial decisions?" Investments and financing decisions boil down to how to spend money and how to borrow money. Two fundamental types of financial decisions are discussed in this section. First, investment involves capital assets that will provide the highest return over a specified time period. Second, financing refers to using own money or raising capital from external funding sources. By the end of this reading, you will be able to identify the criteria a corporation must use when making a financial decision.

1.1.3: Bonds Page Boundless: "Finance: Chapter 6, Section 1: The Basics of Interest Rates"
The cost of money is the opportunity cost of holding money instead of investing it, depending on the interest rate. An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. Market interest rates are mostly driven by inflationary expectations, alternative investments, risk of investment, and liquidity preference. Term structure of interest rates describes how interest rates change over time.
Page Boundless: "Finance: Chapter 6, Section 2: Additional Detail on Interest Rates"
A yield curve shows the relation between interest rate levels (or cost of borrowing) and the time to maturity. It also tells what investors' expectations for interest rates are and whether they believe the economy is going to be expanding or contracting. Three variables determine interest rates: inflation rate, GDP growth, and the real interest rate.
Page Boundless: "Finance: Chapter 6, Section 3: Key Characteristics of Bonds"

Par value is the amount of money a holder will get back once a bond matures; a bond can be sold at par, at premium, or discount. The coupon rate is the amount of interest that the bondholder will receive per payment, expressed as a percentage of the par value. Maturity date refers to the final payment date of a loan or other financial instrument. A callable bond allows the issuer to redeem the bond before the maturity date; this is likely to happen when interest rates go down. A sinking fund is a method by which an organization sets aside money to retire debts. Other important features of bonds include the yield, market price, and putability of a bond.

Page Boundless: "Finance: Chapter 6, Section 5: Advantages and Disadvantages of Bonds"

Bonds have some advantages over stocks, including relatively low volatility, high liquidity, legal protection, and a variety of term structures. However, bonds are subject to risks such as the interest rate risk, prepayment risk, credit risk, reinvestment risk, and liquidity risk.

Page Boundless: "Finance: Chapter 6, Section 4: Understanding Bonds"
A bond is an instrument of indebtedness of the bond issuer to the holders. Duration is the weighted average of the times until fixed cash flows of a financial asset are received. A bond indenture is a legal contract issued to lenders that defines commitments and responsibilities of the seller and buyer. Bond credit rating agencies assess and report the credit worthiness of a corporation's or government's debt issues.
Page Boundless: "Finance: Chapter 6, Section 6: Types of Bonds"
A government bond is a bond issued by a national government denominated in the country's domestic currency. A zero-coupon bond is a bond with no coupon payments, bought at a price lower than its face value, with the face value repaid at the time of maturity. Floating rate bonds are bonds that have a variable coupon equal to a money market reference rate (e.g., LIBOR), plus a quoted spread. Other bonds include register vs. bearer bonds, convertible bonds, exchangeable bonds, asset-backed securities, and foreign currency bonds.
Page Boundless: "Finance: Chapter 6, Section 7: Bond Markets"
Most individuals purchase bonds via a broker or through bond funds. By the end of this reading, you will be able to describe the process for purchasing a bond and explain why bond markets may not have price transparency.
Page Boundless: "Finance: Chapter 6, Section 8: Valuing Bonds"
The value of a bond is obtained by discounting the bond's expected cash flows to the present using an appropriate discount rate. Yield to maturity is the discount rate at which the sum of all future cash flows from the bond are equal to the price of the bond. "Time to maturity" refers to the length of time before the par value of a bond must be returned to the bondholder. This reading will show you how to calculate a bond's yield to maturity and calculate the price of a bond.
Page Boundless: "Finance: Chapter 6, Section 9: Bond Risk"

Bondholders face several types of risk, including price risk, reinvestment risk, and default risk, among others. A bond's credit rating is a financial indicator assigned by credit rating agencies; bond ratings below BBB-/Baa are considered junk bonds.

1.1.4: Stock Valuation Page Boundless: "Finance: Chapter 7, Section 1: Defining Stock"
The stock of a company represents the original capital paid into the business by its founders and can be purchased in the form of shares. Shareholders have the right of preemption, meaning they have the first chance at buying newly issued shares of stock before the general public. By the end of this reading, you will be able to explain what it means to own stock and describe some of the rights of shareholders.
Page Boundless: "Finance: Chapter 7, Section 2: Types of Stock
By the end of this reading you will be able to define common stock and preferred stock and differentiate between these two types of stock.
Page Boundless: "Finance: Chapter 7, Section 3: Rules and Rights of Common and Preferred Stock"

This reading explains the rights of shareholders, depending on what kind of stock they own, including the right to claim income in the case of bankruptcy, voting rights, right to buy newly created shares, etc. This reading further differentiates preferred stock and common stock.

Page Boundless: "Finance: Chapter 7, Section 4: Stock Markets"

The actors in the stock market include individual retail investors, mutual funds, banks, insurance companies, hedge funds, and corporations. The world's largest stock exchange market is the New York Stock Exchange (NYSE), and the NASDAQ is an American dealer-based stock market in which dealers sell electronically to investors or firms. By the end of this reading you will be able to differentiate among these stock markets and explain the purpose and function of a market index.

Page Boundless: "Finance: Chapter 7, Section 5: Stock Valuation"
Valuations rely heavily on the expected growth rate of a company; past growth rate of sales and income provide insight into future growth. A no-growth company would be expected to return high dividends under traditional finance theory. The portion of the earnings not paid to investors is, ideally, left for investment in order to provide for future earnings growth. By the end of this reading you will be able to explain how a stock is valued and describe the limitations of valuing a company with dividends that have a non-constant growth rate.
Page Boundless: "Finance: Chapter 7, Section 6: Valuing the Corporation"
Three approaches are commonly used in corporation valuation: the income approach, the asset-based approach, and the market approach. This reading will help you be able to differentiate between these three models.
1.1.5: Institutions, Markets, and Intermediaries Page Boundless: "Economics: Chapter 29, Section 1: Institutions, Markets, and Intermediaries"

This section discusses the financial intermediary as an institution that facilitates the flow of funds between individuals or other economic entities. By the end of this reading, you will be able to discuss the purpose and types of financial institutions and identify the role that financial intermediaries play in the economy.

1.1.6: Securities Page Boundless: "Finance: Chapter 9, Section 1: The Security Markets"

This reading will introduce the types of stock market transactions, including IPOs, secondary market offerings, private placement, and stock repurchase. By the end of this reading, you will be able to differentiate between the different types of market organizations which facilitate trading securities: auction market, brokered market, and dealer market.

Page Boundless: "Finance: Chapter 9, Section 2: Understanding Returns"

This reading will help you define and distinguish realized returns from unrealized returns. By the end of this reading, you will be able to calculate an investment's dollar return and percentage return. You will also be able to describe how historical and average returns can be used to predict future performance.

Page Boundless: "Finance: Chapter 9, Section 3: Market Efficiency"

This reading explains why transparent financial markets provide efficient information about financial instruments, and aid in the discovery of financial information by interested parties. There are three ways to categorize markets based on the types of information available in the market. After reading this you will be able to identify all three market conditions, which are called "efficiencies".  When markets provide the most efficient form of readily available information, no one party can benefit unfairly from the price changes in a market.

Page Boundless: Finance: "Chapter 9, Section 4: Market Regulation
This section discusses some of the most important legislation meant to regulate finance and protect stakeholders.
1.2: Corporate Finance and Corporate Structures Page Khan Academy's "Finance: What It Means to Buy a Company's Stock; Introduction to Bonds; and Bonds vs. Stocks"

The first of the following videos explains the definition of a stock and what individual investors obtain when they buy a share of a company's stock. The next video explains the definition of a bond and what individual investors obtain when they buy a corporate bond. The final video explains the difference between a stock and a bond.

1.2.1: Corporate Finance Page Boundless: Finance: "Chapter 19, Section 5: Corporate Bonds" Page

This section discusses how a corporate bond is issued by a corporation to rise money in order to expand its business. Key takeaways from this discussion include the definition of a corporate bond, secured loan/debt, unsecured loan/debt, senior debt, and subordinated debt. By the end of this reading, you will be able to explain how an organization can finance their operations through bonds.

Page Boundless: Finance: "Chapter 16, Section 1: Convertible Securities"

Convertible securities are convertible bonds or preferred stocks that pay regular interest and can be converted into shares of common stock. By the end of this reading, you will be able to identify the different features of convertible bonds and discuss the advantages and disadvantages of convertible bonds.

Page Boundless: Finance: "Chapter 16, Section 2: Options"
Options give the owner the right, but not the obligation, to buy or sell an underlying asset or instrument. By the end of this reading, you will be able to describe the different factors that influence the value of an option and differentiate between the types of options.
Page Boundless: Finance: "Chapter 16, Section 3: Warrants"
A warrant is a security that entitles the holder to buy the underlying stock of the issuing company at a fixed exercise price until the expiration date.
Page Boundless: Finance: "Chapter 16, Section 4: Derivatives"
A derivative is a financial instrument whose value is based on one or more underlying assets. By the end of this reading, you will be able to identify the uses of derivatives and differentiate between the different types of derivatives.
Page Boundless: Finance: "Chapter 16, Section 5: Managing Risk with Derivatives"

Derivatives allow risk related to the price of underlying assets, such as commodities, to be transferred from one party to another.

1.2.2: Liability of Principal and Agent URL Business Law and the Legal Environment: "Chapter 39: Liability of Principal and Agent; Termination of Agency"

As you read this chapter, consider why contracts are important and how they work. Pay close attention to the following topics: liability in contract, principal criminal liability, and how agency relationships are terminated. By the end of this reading, you will be able to name the principal's liability in contracts, torts, and criminal law and the agent's personal liability in tort and contract, and how agency relationships are terminated. The relevance of legal issues presented in this section is integrally connected with business finance and how relationships are conducted in the business world. 

1.2.3: Equity Finance Page Boundless: Business: "Chapter 19, Section 5: Equity Finance"

This section discusses how companies can use equity financing to raise capital, and/or increase shareholder liquidity (through an Initial Public Offering-IPO). By the end of this reading you will be able to explain the process of financing a firm through equity capital. For the aspiring business executive or student, it is critical to understand and be able to apply how businesses raise equity capital to expand their operations. 

1.3: Financial Statements Page Khan Academy's "Finance: Introduction to Balance Sheets"

This video introduces balance sheets. A balance sheet statement is an account of the value of assets, liabilities, and net worth of a company.  It is always considered during a point in time, such as December 31, 2011.  Assets are things that a company owns; whereas liabilities are things that a company owes.  Assets minus liabilities results in the net worth of a company.

Page Khan Academy's "Finance: More on Balance Sheets and Equity"

This video introduces balance sheets and equity.

Page Khan Academy's "Finance: Introduction to the Income Statement"

This video introduces income statements. An income statement is an account of the revenues (net sales), costs, expenses, and taxes of a company during a period of time, say from December 31, 2011 to December 31, 2012.  The goal of an income statement is to compute the net profits of a company and all the different items involved.

Page Khan Academy's "Finance: Cash Accounting"

This video introduces cash accounting. An accountant, who is responsible for preparing financial statements, is concerned with accrual basis accounting; whereas, the financial analyst or manager is concerned with cash-basis accounting by keeping track of the real uses and sources of cash.  Make sure you understand this difference.

Page Khan Academy's "Finance: Accrual Basis of Accounting"

This video introduces the accrual basis of accounting.

Page Khan Academy's "Finance: Comparing Accrual and Cash Accounting"

This video compares accrual and cash accounting.

Page Khan Academy's "Finance: Balance Sheet and Income Statement Relationship"

This video discusses the relationship between balance sheets and income statements.

Page Khan Academy's "Finance: Basic Cash Flow Statement"

This video introduces cash flow statements.

1.3.1: Financial Statements, Taxes, and Cash Flow Page Boundless: Finance: "Chapter 2, Section 1: Introducing Financial Statements"
Read this lesson, which covers defines the financial statement, and covers uses and limitations of financial statements.
Page Boundless: Finance: "Chapter 2, Section 2: The Income Statement"
Read this lesson, which focuses on the elements and limitations of the income statement, as well as the effects of GAAP on the income statement. Noncash items will also be discussed.
Page Boundless: Finance: "Chapter 2, Section 3: The Balance Sheet"
This lesson will give you an introduction to the balance sheet, a representation of a firm's financial position at a single point in time. The balance sheet is one of the four major financial statements. You will be able to identify assets, liability, and shareholder's equity, and learn how to compute the balance sheet equation. You will also be able to create a balance sheet.
Page Boundless: Finance: "Chapter 2, Section 4: Tax Considerations"
This lesson exposes you to the impact of taxes on firms. You will learn how different forms of corporate organization affect the tax obligations for the firm and the individual owners. You will be able to compute tax liability, using the tax rate. This section defines the various types of taxes, and discusses the impact of depreciation on taxable income. It also compares a tax credit with a tax deduction, and demonstrates multiple methods of computing depreciation.
Page Boundless: Finance: "Chapter 2, Section 5: The Statement of Cash Flows"
This section gives an introduction to the "Statement of Cash Flows", which is one of the major financial statements. You will be able list the three types of cash flows and their connection to other financial statements. You will also learn how to interpret the Statement of Cash Flows.
Page Boundless: Finance: "Chapter 2, Section 6: Other Statements"
In this section you will learn about less commonly used financial statements such as the Statement of Equity and the Free Cash Flow Statement (which is different from The Statement of Cash Flows), and their uses in finance. It also explains the difference between economic value and market value.
1.3.2: Analyzing Financial Statements Page Boundless: Finance: "Chapter 3, Section 1: Standardizing Financial Statements"
This section provides more insight into the standard elements that are included in all balance sheets and income statements. It provides a listing of common accounts on each statement and the order in which those accounts are listed.
Page Boundless: Finance: "Chapter 3, Section 2: Overview of Ratios"
This section provides a general overview of what a financial ratio is, how they are used, and the relevant categories of financial ratios.
Page Boundless: Finance: "Chapter 3, Section 3: Profitability Ratios"
After reading this section, you will have been exposed to the different types of profitability ratios, their formulas, how to compute them, and which financial statements contain the information needed to calculate the ratios. You will also learn how to interpret the ratios and apply those interpretations to understanding the firm's activities.
Page Boundless: Finance: "Chapter 3, Section 4: Asset Management Ratios"
After reading this section, you will have been exposed to the different types of asset management ratios, their formulas, how to compute them, and which financial statements contain the information needed to calculate the ratios. You will also learn how to interpret the ratios and apply those interpretations to understanding the firm's activities.
Page Boundless: Finance: "Chapter 3, Section 5: Liquidity Ratios"
After reading this section, you will have been exposed to the different types of liquidity ratios, their formulas, how to compute them, and which financial statements contain the information needed to calculate the ratios. You will also learn how to interpret the ratios and apply those interpretations to understanding the firm's activities.
Page Boundless: Finance: "Chapter 3, Section 6: Debt Management Ratios"
After reading this section, you will have been exposed to the different types of debt management ratios, their formulas, how to compute them, and which financial statements contain the information needed to calculate the ratios. You will also learn how to interpret the ratios and apply those interpretations to understanding the firm's activities.
Page Boundless: Finance: "Chapter 3, Section 7: Market Value Ratios"
After reading this section, you will have been exposed to the different types of market value ratios, their formulas, how to compute them, and which financial statements contain the information needed to calculate the ratios. You will also learn how to interpret the ratios and apply those interpretations to understanding the firm's activities.
Page Boundless: Finance: "Chapter 3, Section 8: The DuPont Equation, ROE, ROA, and Growth"
As you read this section, you will learn about some special ratios that address dividend growth, return on assets and equity. You will be exposed to their formulas, how to compute them, and which financial statements contain the information needed to calculate the ratios. You will read about the DuPont Equation (also known as the strategic profit model), which is comprised of multiple financial ratios. You will also learn how to interpret the ratios and apply those interpretations to understanding the firm's activities.
Page Boundless: Finance: "Chapter 3, Section 9: Using Financial Ratios for Analysis"
An overview of how financial ratios are used to aid in company analysis is presented in this lesson. Financial ratios are used for industry comparisons, benchmarking, and trend analysis. This section also presents some limitations of financial ratio analysis to consider when evaluating firms.
Page Boundless: Finance: "Chapter 3, Section 10: Considering Inflation's Distortionary Effects"
This lesson describes what inflation is and the various categories of inflation. I discusses the impact that inflation in an economy has on a firm's earnings and financial statements.
Page Boundless: Finance: "Chapter 3, Section 11: Other Distortions"
This section mentions other items that can distort the true value or representation of information on financial statements. It provides information about two primary examples of distortions--accounting errors and unusual one-time gains or losses.
1.3.3: Forecasting Financial Statements Page Boundless: Finance: "Chapter 4, Section 3: Forecasting the Income Statement"
After reading this section you will understand how to create a forecast of the income statement, using assumptions for the future growth of expenses and sales by category. A forecasted financial statement is called a "pro forma" statement. You will be able to distinguish between levels of profit on the income statement and classify activities as operating or non-operating activities.Pro Forma financial statements are useful for valuing a firm in preparation for its sale, for comparisons of the impacts of financial proposed transactions, or for estimating future costs and expenses under certain business scenarios.
Page Boundless: Finance: "Chapter 4, Section 4: Forecasting the Balance Sheet"
After reading this section you will understand how to create a forecast of a balance sheet. A forecasted financial statement is called a "pro forma" statement. You will be able to distinguish between accounts on the balance sheet, and better understand how to analyze a pro forma balance sheet. Pro Forma financial statements are useful for valuing a firm in preparation for its sale, for comparisons of the impacts of financial proposed transactions, or for estimating future costs and expenses under certain business scenarios.
Page Boundless: Finance: "Chapter 4, Section 5: Building a Cash Budget"
This section emphasizes the importance of cash and good cash management to a business. You will learn how to analyze cash inflows and outflows so that you can better forecast a firm's cash budget. When you have completed this section, you will be able to describe the direct and indirect method of cash flow forecasting. Cash flow is often used a determinant providing financing to firms. A cash budget is used along with pro forma financial statements to assess the impact of financial transactions.
Page Boundless: Finance: "Chapter 4, Section 6: Analyzing Forecasts"
When you have completed this section, you will be able to use ratio analysis to assess a firm's performance to compare its performance to itself, its competitors, its industry, and across time. You will learn the categories of ratios, how to compute ratios and how to interpret the numeric values of a ratio as a comment on the firm's performance. Ratio analysis is used when considering the impact of certain financial transactions affecting a firm.
1.3.4: The Statement of Cash Flows Page Boundless: Finance: "Chapter 2, Section 5: The Statement of Cash Flows"
This section exposes you to one of the four major financial statements, the "Statement of Cash Flows." It explains how to create and interpret the statement, as well as discusses the three major activities that produce cash for a firm -- operating, investing, and financing.
1.4: Financial Ratios Page Khan Academy's "Finance: Earnings and EPS"

This video discusses how to compute the P/E ratio and its significance.

Page Wikipedia: "Financial Ratio"

An overview of the financial ratios is presented in this section. The manager or student may well ask the question "Why are financial ratios important to understanding the activities of the business?" This question is addressed in this section. Pay particular attention to the following topics: (1) Sources of financial ratios, (2) Purpose and types of ratios, (3) Accounting methods and principles, (4) Abbreviations and terminology, and (5) A summary of all ratios used to analyze financial statements. Try to commit to memory some of the basic formulas presented in this section.

Page Boundless: Accounting: "Chapter 16, Section 4: Selected Financial Ratios and Analyses"

This section presents financial ratios and their analysis. Why are financial ratios and their analysis important?  To answer this question, you should pay particular attention to the firm's profitability, and allow comparisons between the firm and its industry. By the end of this reading, you will be able to summarize how an interested party would use financial ratios to analyze a company's financial statement.

Page Boundless: Finance: "Chapter 3, Section 9: Using Financial Ratios for Analysis"

Five key concepts are presented in this section. They are: (1) evaluating financial statements , (2) Industry comparisons, (3) Benchmarking, (4) Trend Analysis, and (5) Limitations of financial statements. Read this entire section because explanation is given how financial ratios are evaluated, compared, and benchmarked. These financial tools are used widely in the banking and credit industry to evaluate businesses that apply for credit. The banking decision to grant credit to a business is based on whether or not the analysis of the ratios demonstrates that the organization can repay the loan that they are requesting from the bank.   

1.5: Pro Forma Financial Statements Page Boundless: Finance: "Chapter 4, Section 3: Pro Forma Income Statement"

Read this section that discusses the Pro Forma income statement. Pay close attention to the definition of Pro Forma statement because it is planned and prepared in advance of a transaction to project the future status of the company. By the end of this reading, you will be able to draft a pro forma income statement. Businesses in all industries use Pro Forma income statements to make managerial decisions that affect their sustainability.

Page Boundless: Finance: "Chapter 4, Section 4: Pro Forma Balance Sheet"

This section discusses the Pro Forma balance sheet. The question concerning "Why should the Pro Forma Balance Sheet be used in a business?" is relevant as the economy changes. Possible uses of the Pro Forma balance sheet include mergers and acquisitions, warranties and negotiating a commercial lending relationship to support growth. A pro forma balance sheet summarizes the projected future status of a company after a planned transaction, based on the current financial statements. By the end of this reading, you will be able to prepare a pro forma balance sheet.

URL Finance for Managers: "Chapter 5: Pro Forma Statements"

Read this section and pay close attention to the summary of pro- forma financial statements as follows: (1) the pro-forma income statement, (2) the pro-forma balance sheet,(3) assessment of pro-forma statements, (4) the bigger picture, and (5) end of chapter problems.  Please attempt the practical exercises, at the end of this section, to check your understanding about the uses of pro-forma financial statements. Note:  The images in this resource are broken. Per the publisher's website, the resource is in draft mode.

Page Wikispaces: "Financial Modeling and Pro Forma Analysis"

This section discusses financial modeling and pro forma analysis. The five key takeaways include: (1) Introduction - financial goals and long-term planning, (2) Percent of sales method, (3) Forecasting  a planned expansion, (4) The planned expansions value, and (5) Growth and firm value. Managers and executives use these financial tools regularly to make internal decisions and to present to external partners such as banks and investors.  

2.1: The Time Value of Money Page Khan Academy's "Finance: Time Value of Money"

This video discusses the difference between present value and future value. The concept called the "time value of money" assumes that individuals face either an increase in prices in the economy as time passes in the form of an inflation rate, such as a 4% annual inflation rate, or an opportunity to put their savings in an investment account offering an interest rate, such as 5% per year.  Therefore, under the "time value of money" concept, you can see that $1,000 that you can receive in two years from today does not have the same value as $1,000 today.  In fact, it will have a lesser value today.  Likewise, if you receive $1,000 today and have the opportunity to put this money in an investment account earning 5% per year, in two years you will have more than $1,000.

Page Khan Academy's "Finance: Introduction to Interest"

This video discusses how interest rates are applied. Note that a rate of return is usually expressed as a percentage (e.g., 4%) but when you need to apply it in a calculation, use it in decimal-form (e.g., 0.04 is the decimal-form of 4%, 0.10 is the decimal-form of 10%, etc). The same applies to the numerical expressions of interest rates.

Page Khan Academy's "Finance: Interest (Part 2)"

This video discusses how interest rates are applied. When you need to calculate the future value of an amount using a simple interest rate, you apply the interest rate only to the initial amount. On the contrary, when you calculate the future value of an amount using the compound interest rate, you apply the interest rate not only to the initial amount but also to amounts of interest earned. The compound interest rate is commonly used by banks, credit card companies, and any other financial institution. The simple interest rate is usually applied to loans made in informal business deals, and even to loans involving family members!

Page Boundless: Finance: "Chapter 5, Section 1: Introduction to the Time Value of Money"
Read this section that discusses the time value of money. "Why is the time value of money important?". The answer to this question lies in the concepts presented in this section. In the finance world, a dollar is more valuable today than it is 1 year or 10 years from now. To explain why this is the case, formulas and examples are presented that demonstrate how money is used . As part of this discussion, the topic of why a dollar is worth more today than in the future is presented. Pay particular attention to the definitions and problems presented that relate to interest rate, future value, and present value. 
Page Boundless: Finance: "Chapter 5, Section 6: Additional Detail on Present and Future Values"
This section gives more detail on computing present and future values. It shows you how to compute more complex problems involving future and present values when there are multiple compounding periods and when the time duration of those problems are longer or are less than one year in duration.
Page Boundless: Finance: "Chapter 5, Section 7: Yields"
This lesson shows you how to determine the yield (or return) on an investment. It also describes the differences between the effective annual rate and the annual percentage rate.
2.2: Future Value and Compounding Page Boundless: Finance: "Chapter 5, Section 2: Future Value, Single Amount"

Read this section that discusses four separate but related concepts. They include: (1) multi period investment, (2) approaches to calculating future value, and (3) single period investment. How are these topics used in the business world? The application of these concepts is useful when comparing alternative investments and scarce capital resources are available.  Often in a business setting, limited capital resources are available.  Therefore, the decision concerning which investment is best depends on comparing which investments will bring the highest returns to the business.

Page Boundless: Finance: "Chapter 5, Section 5, Part 1: Future Value, Multiple Flows"

Read this section that discusses Future Value and Multiple Flows. Students will learn how to calculate the future value of multiple annuities.

Page Steven Clark's "Future Value of an Ordinary Annuity"

Read about ordinary annuities in this section. The business executive may ask how annuities are used in the real world of business? Pay close attention to how the present value of an ordinary annuity is calculated. Then, the future value of an ordinary annuity is discussed. This is followed by a discussion about when annuities are due. Examples of how and when annuities are used include investments, retirement planning for a future regular payment.

2.3: Present Value and Discounting Page Khan Academy's "Finance: Introduction to Present Value"

This video discusses the basic use of the Present Value (PV) formula when only one period is considered.

Page Khan Academy's "Finance: Present Value 2"

This video applies the PV formula when different cash flows are considered in different periods.

Page Khan Academy's "Finance: Present Value 3"

This video discusses how to re-calculate the PV amounts when the interest rate changes.

2.3.1: Present Value, Single Amount Page Boundless: Finance: "Chapter 5, Section 3: Present Value, Single Amount"
Read this section that discusses how to calculate the present value of a future, single-period payment; the return on a multi-period investment over time; what real world costs to the investor comprise an investment’s interest rate; what a period is in terms of present value calculations; and how to distinguish between the formula used for calculating present value with simple interest and the formula used for present value with compound interest.
2.3.2: Present Value, Multiple Flows Page Boundless: Finance: "Chapter 5, Section 5, Part 2: Present Value, Multiple Flows"

Read this section that discusses Present Value, Multiple Flows. Students will be able to use present value to determine the best financing option and calculate the present value of an investment portfolio that has multiple cash flows.

2.3.3: How Capital Budgeting is Used to Make Decisions URL Managerial Accounting, v1.0: "Chapter 8: How is Capital Budgeting Used to Make Decisions?"

Read this section that discusses capital budgeting and decision making along with the topics of net present values, annuity tables, internal rate of return. Examples about how large corporations use these topics are presented in this section. Large corporations use capital budgeting techniques when they invest in real estate projects or large equipment projects. 

2.3.4: Present Value Interest Factor Page Steven Clark's "Present Value Interest Factor"

Read this section that presents four scenarios that each pertain to the time value of money. First, the time period to reach a single amount target sum. Second, the time period to reach an annuities maturity. Third, Growth rate of a single amount. And fourth, the growth rate of an annuity. The application of these topics can be helpful on an individual level when considering investments and comparing which investments are going to give the highest projected return. 

2.4: Variable Rates of Return Page Khan Academy's "Finance: Introduction to Compound Interest and e (Part 1)”

This video shows you how to use the future value formula when you are considering an interest rate that applies every six months but it is quoted on an annual basis.

Page Khan Academy's "Finance: Introduction to Compound Interest and e (Part 2)”

This video shows you how to use the future value formula when you are considering the annual interest rate on a daily basis.

Page Khan Academy's "Finance: Introduction to Compound Interest and e (Part 3)”

This video gives a review of what you learned from the first two videos.

Page Khan Academy's "Finance: Introduction to Compound Interest and e (Part 4)”

This video shows you about what it means to use an annual interest rate continuously.

2.4.1: Time-Varying Rates of Return and the Yield Curve File Borja Larrain's "Time-Varying Rates of Return and the Yield Curve"

Please read this section that discusses the time-varying rates of return and the yield curve, and bonds and the yield curve. In addition, sensitivity to changes in interest rates are also discussed.  Application of these concepts is also presented so that the manager or executive will know how to use them. Note: There is some class specific information from the professor who created this document. Please ignore it.

2.4.2: Time Varying Interest Rates and Yield Curves File MIT OpenCourseWare: Investment: Reto Gallati's "Time Varying Interest Rates and Yield Curves"

This section explains five topics that are important to businesses:  (1) The fixed income market, (2) The varying interest rates and yield curves, (3) A model for stochastic interest rates, (4) The risk of rolling over, and (5) Implications of the yield curve. Why are these topics important to the business owner or executive? These topics are used when the returns on investments are sought by investors. Note: There is some class specific information from the professor who created this document. Please ignore it.

2.5: Special Applications: Perpetuities and Annuities Page Boundless: Finance: "Chapter 5, Section 4: Annuities"
After reading this section, you will know how to identify, define, and calculate the present and future value of an annuity - type of financial instrument. An annuity is the name for the structure of a financial instrument that is a finite series of level payments that have a definite end. When you are finished, you will be able to recognize the two types of annuities: an ordinary annuity and an annuity due, and explain how they are different. Also, you will be able to calculate each of these types of annuities, and contrast them to their opposite -- a perpetuity. Annuities are key to understand because their structure mimics the payment structure of a bond's coupon payment. This section is foundational for being able to calculate bond prices.
Page Boundless: Finance: "Chapter 5, Section 6, Part 2: Calculating Perpetuities"
This section that discusses calculating perpetuities, which is a special type of annuity, for which the stream of payments never ends.
Page Boundless: Finance: "Chapter 5, Section 7, Part 2: Calculating the Yield of an Annuity"
This section about calculating the yield of an annuity, which is the total return received, stated as a percent. There are two major methods used to calculate the yield.
URL Personal Finance, v1.0: "Chapter 4, Section 3: Valuing a Series of Cash Flows"

This section discusses how to value a series of annuities. Key takeaways are summarized for the manager or students benefit. In addition, exercises and problems relating to mortgage loans that illustrate how annuities pertain to everyday situations are presented. Summary exercises are also given to enhance subject learning.  

3.1: Capital Budgeting and Net Present Value Page Boundless Finance: "Chapter 11, Section 4: Net Present Value"

Read this section that discusses the following net present value concepts: (1) Net Present Values (NPV): (2) Calculating NPV; (3) Interpreting NPV; (4) Advantages of Using NPV; (5) Disadvantages of Using NPV; and (6) NPV Profiles. Examples of these concepts are  shared about how to implement these concepts in practical applications.

3.2: Internal Rate of Return Page Boundless Finance: "Chapter 11, Section 3: Internal Rate of Return"

Read this section about Internal Rate of Return (IRR). Particular attention should be given to the following topics: (1) Internal Rate of Return; (2) Definition of Internal Rate of Return; (3)Calculating Internal Rate of Return ; (4) Advantages of Using Internal Rate of Return: (5) Disadvantages of Using Internal Rate of Return ; (6) Calculating Multiple Internal Rates of Return and ; (7) Understanding and calculating Modified Internal Rates of Return. Problems and solutions are also provided in this section. 

3.3: Profitability Index Page Boundless Finance: "Chapter 11, Section 1: Part 4: Ranking Investment Proposals"

Read this section that discusses capital budgeting and ranking investment proposals. The importance of this subject arises when businesses are comparing similar real estates investments with the intent of picking the investment that yields the highest return. Several methods are presented in this section and are commonly used to rank investment proposals, including net present value (NPV), internal rate of return (IRR), profitability index (PI), and accounting rate of return (ARR). The formulas and examples are given to demonstrate how to apply these formulas in the real world.  

URL Accounting for Managers: "Chapter 13, Section 5: Other Methods"

Read this section that discusses methods of evaluating capital budgeting, calculating the profitability index and discuss the modified internal rate of return (MIRR). Two separate investment proposals are compared and contrasted using multiple methods of comparison. This method of comparison gives the student or manager a broad view about how to evaluate the best decision for investing limited or scarce financial resources. Corporations use these capital budgeting methods when comparing and contrasting competing real estate investments that will yield variable returns.

3.4: Payback Period Method Page Boundless: Finance: "Chapter 11, Section 2: The Payback Method"

Read this section that presents the Payback Method of investing. Specific emphasis is given to (1) Defining the payback method, (2) Calculating the payback method, (3) Discounted payback, (4) Advantages of the payback method, and (5) Disadvantages of the payback method.  Examples that demonstrate application are presented in this section. 

3.5: Evaluating Projects Incrementally Page Khan Academy's "Finance: Depreciation in Cash Flow”

These videos show you how to work with a depreciating asset in an income statement.

When a replacement project is being considered, the initial investment is composed of the cost of the new project plus any installation or cleaning costs minus the after-tax cash flow from selling the current project. The MACRS depreciation schedule is used to estimate the current value of a physical asset, such as a computer, at any moment of time of this asset's life. That value is called the "book value." When a replacement project is being considered, the incremental operating cash flows need to be computed every period starting with period 1 as follows:

incremental  C_1  =  C_1 from the new project -  C_1 from the current project

When a replacement project is being considered, the terminal cash flow is the cash flow that will be generated in the last period of the project. This is an important concept when machines with a long life are intended to be used for short periods until the end of a project. After the project is over, a long-lasting machine could either be sold to a buyer in the market at the given market price or sold as scrap for a lower amount than its remaining book value.

Page Boundless: Finance: "Chapter 11, Section 1: Introduction to Capital Budgeting"

Read this section about making capital budgeting decisions. The discussion includes the following: (1) Goals of Capital Budgeting, (2) Ranking of Investment Proposals, (3) Reinvestment Assumptions, (4) Long term and short term financing , (5) Payback Method (PM), (6) Internal Rate of Return(IRR), (7) Net Present Value (NPV), and (8) Cash Flow Analysis. Who uses these capital budgeting decisions? The answers to these questions are contained in this section. When managers and executives make financial decisions to invest limited resources, they use the information presented in this section because they are more likely to invest wisely.   

Page Penn State University: Farid Tayari and Kuangyuan Zhang's "Depreciation and Depreciation Methods"

Read this section that presents the concept of depreciation and depreciation methods. Why are depreciation methods used in financial decision making? Real estate and long-term equipment is depreciated when making financial calculations using generally accepted accounting principles so that more accurate decisions are made. Examples are used to illustrate how long term assets are depreciated to arrive at more accurate financial calculations and the decisions that are result.

3.6: How Capital Budgeting is Used to Make Decisions URL Managerial Accounting: "Chapter 8: How is Capital Budgeting Used to Make Decisions?"

You have already read this chapter. Please now complete the problem sets pertaining to how capital budgeting is used to make decisions. Do corporations actually use capital budgeting concepts and formulas to make decisions? Concepts and examples are presented using Net Present Value (NPV), Present Value (PV) tables, summaries and problems are presented. Internal Rate of Return (IRR), Net Present Value (NPV) and the payback method are presented along with examples that demonstrate application.   Examples are presented and discussed with respect to Kohls and J.C. Penny's using capital budgeting decisions.

4.1: Statistical Concepts in Finance: Probabilities, Expected Value, Standard Deviation, and Risk-Return Tradeoff Page Khan Academy's "Finance: Basic Introduction to Risk and Reward”

Watch this video, which gives an example of the relationship between risk and reward.

URL Risk Management for Enterprises and Individuals: "Chapter 3, Section 2: Uncertainty, Expected Value, and Fair Games"

Read this section that includes discussion and examples about Uncertainty, Expected Value and Fair Games, and Mathematical preliminaries because it forms the basis for analysis of individual decision making in uncertain situations. Examples of application are presented for students to learn the application of concepts.

Page Boundless Finance: "Chapter 8, Section 1: Understanding Return"

This section presents an introduction to risk and return; understanding return; portfolio concerns such as diversification and weighting and expectations for expected returns; implications across portfolios; diversification and understanding security lines. Risk considerations include the types of risk and measuring risk. Why are these topics of risk and return important to consider?  The key takeaways of this section discuss how risk and return, risk diversification, and measuring risk affect how scarce financial resources are used and the benefits that are received from scarce financial resources.

4.2: Uncertainty in Capital Budgeting Page Boundless Finance: "Chapter 12, Section 1, Part 1: Risks Involved in Capital Budgeting"

Read this section and pay particular attention to the risks associated with capital budgeting. Why is risk in capital budgeting important to understand and be able to apply? The answer to this question is contained in this section. Risks include operational risks, financial risks and market risks. The process of capital budgeting must take into account the different risks faced by corporations and their managers.  The discussion of capital budgeting and a definition of risk topics are also presented in this section.

4.3: Risk and Reward in a Portfolio Page Boundless Finance: "Chapter 8, Section 4: Risk"

Read this chapter and learn more about risk and return. Please do not skip over sections 4 and 5, as these are particularly important. When and how is risk and return used in a business setting? In this section, answers begin with understanding return. Portfolio considerations are then presented that include diversification and weighting and implications for expected returns, and implications for variance. 

4.4: Risk Diversification in a Portfolio Page Boundless Finance: "Chapter 8, Section 2: Portfolio Considerations"

Read this section that discusses portfolio diversification and weighting, implications for expected returns, and implications for variance.

Page Boundless Finance: "Chapter 8, Section 6: Diversification"

This section discusses diversification and the impact of diversification on risk and return. Two concepts of diversification are presented in this section. First, unsystematic risk addresses the impact of diversification on risk and return. Second, systematic risk evaluates the impact of diversification on risk and return.  These concepts are used as corporations manage their investment portfolios and they seek to achieve the best returns possible, given existing market conditions. 

4.5: Risk of Stock Investments and Market Betas Page Boundless Finance: "Chapter 8, Section 3: Announcements, News, and Returns"

This section discusses capital structure, optimal capital structure, debt and equity,  and cost of capital considerations. Why are these concepts important when managing a business?  Application and examples are presented in this section so the student and manager will understand how to effectively utilize the concepts of optimal capital structure. 

Page Boundless Finance: "Chapter 8, Section 5: Implications Across Portfolios"

Read this section and learn more about risk and return, implications across portfolios and the beta coefficient for portfolios. Why are these topics important to businesses? The answer is contained in this section.  This section discusses how with individual stocks, a beta coefficient compares how much a particular stock fluctuates in value on a day-to-day basis. 

Page Boundless Finance: "Chapter 8, Section 7: Understanding the Security Market Line "

Read this section that discusses expected risk and risk premium, defining the security market line, and the impact of the SML on the cost of capital.

5.1: Capital Structure Finance Theory Page Khan Academy's "Finance: Basic Capital Structure Differences"

This video gives you an example of two similar businesses that have different capital structures.

Page Khan Academy's "Finance: Market Capitalization"

This video explains the difference between market value and book value for defining firm value.

Page Khan Academy's "Finance: Market Value of Assets"

This video explains how to calculate the market value of a firm by concentrating on the firm's assets.

Page Boundless Finance: "Chapter 13, Section 1: Introducing Capital Structure"

This section discusses capital structure, optimal capital structure, debt and equity,  and cost of capital considerations. Why are these concepts important when managing a business?  Application and examples are presented in this section so the student and manager will understand how to effectively utilize the concepts of optimal capital structure. 

5.2: Cost of Capital and Capital Structure: WACC Page Khan Academy's "Finance: Return on Capital"

This video explains the relationship between choosing a particular cost of debt and the return on capital.

Page Boundless Finance: "Chapter 13, Capital Structure Considerations"

This section covers discussions about capital structure, optimal capital structure,debt and equity and return on investment.  How do businesses benefit from using these concepts?  Businesses have the opportunity to earn more return from their investments and their blend of debt and equity capital structure. Examples are presented that demonstrate how these concepts are used. 

URL Finance for Managers: "Chapter 12, Section 5: Weighted Average Cost of Capital (WACC)"

This section presents the Weighted Average Cost of Capital (WACC) in more detail. Why is the Weighted Average Cost of Capital (WACC) concept important?  The answer to this question is presented with the WACC equation that is compiled and solved.  

6.1: Calculating the Cost of Capital using CAPM Page Boundless Finance: "Chapter 10, Section 3: Approaches to Calculating the Cost of Capital"

This section discusses how to price  risky securities in order to determine if an investment should be undertaken. Why is this important?  The answer is contained in the discussion that describes how to determine the expected rate of return of an asset. When you finish with this section, you should understand the terms systematic risk, systematic risk and beta.   Most importantly, by understanding the Capital Asset Pricing Model (CAPM), you will be able to determine if an investment should be undertaken. 

URL Finance for Managers: "Chapter 12: Cost of Capital"

This section provides an overview of the cost of capital. In addition to the Weighted Average Cost of Capital (WACC), topics discussed in this section include  flotation costs, cost of debt, cost of preferred stock, cost of common stock.  Examples and problems are presented to show why this WACC is important. 

Study Guides and Review Exercises Page Unit 1 Study Guide and Review: Introduction To Finance, Financial Statements, And Financial Analysis
Page Unit 2 Study Guide and Review: Time Value Of Money: Future Value, Present Value, And Interest Rates
Page Unit 3 Study Guide and Review: Capital Budgeting Techniques
Page Unit 4 Study Guide and Review: Risk and Return
Page Unit 5 Study Guide and Review: Corporate Capital Structure, Cost Of Capital, and Taxes
Page Unit 6 Study Guide and Review: Applying the CAPM Model
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