🙋 Student Questions and Answers

Section agendas can be found here. Email office hour questions to robmgmte2700@gmail.com. PS1Q2=“Question 2 of Problem Set 1”

Saturday, Feb 17

Computing the NPV Profile Using Excel

❔ Could we go over Chapter 8 “Introduction: Computing the NPV Profile Using Excel’s Data Table Function”? I am having trouble recreating the Excel image as shown in the textbook (screenshot below). I’d appreciate a step-by-step walkthrough.

✔ We decided not to answer this question because it wouldn’t be on the test. I think the original asker was there and was happy with the decision, but if anyone (including the original asker) still wants to see the answer to this, just email me!

Monday, Feb 19

PS2 Q11

🕣 TimeStamp - 7:50 PM in the Feb 19 recording
❔ For PS2Q11, could you please clarify why the PV is not calculated on year 1 for the initial cash investment of $1,310 but it is calculated for the cash inflow of $5,240 at the end of the first year?
After thinking about this question I may have interpreted the initial investment of $1,310 as happening in year 1 when it should be assumed it is at year 0 (with no cash inflow at year 0). Is that assumption correct?

✔ You are correct. “Initial investments” generally occur at time T=0. You can think of the initial investment as representing the start of the project. It defines T=0.

What is I/Y?

✔ The book will talk a little bit about how to use a financial calculator. On a financial calculator, you use the I/Y button to indicate the discount rate. If you’re not using a financial calculator, you can skip this.

http://www.tvmcalcs.com/

Rounding Rules

❔ What is meant by rounding to the nearest dollar? Rounding to the nearest cent?

✔ Suppose that i=7% and you receive $100 in one year. What is the NPV?

100/1.07=$93.4579439252

If the question says, round to the nearest dollar, you put in $93. If it says, round to the nearest cent, you put in $93.46. The idea is that your answer should be as correct as possible. to the nearest penny/cent. Note that in this second example, we rounded up, consistent with standard rules of rounding?

Commas?

❔10,000.10 or 10000.10?

✔ Don’t put the commas in.

On the modules page of Canvas is a word doc about how to enter answers into MyLab

Who determines the discount rate?

✔ You do! We will be studying how to do that. Check the syllabus for “Weighted Average Cost of Capital”

Do I have to know more than is in the slides?

✔ No. You never need to know more than is in the slides and the problem sets in a Bruce Watson class. If this is your first class since 2000, then I do recommend reading the book, but the downside of the book is that you’ll have to filter some material out that you’re not responsible for.

L3 Slide 61

❔In Lecture 3, Slide #61, the “debt-to-enterprise value ratio” is stated as “Net Debt/ Market value of equity+Net Debt (Enterprise value) , however cash is not added back to the denominator (when calculating the enterprise value)- should it be excluded in this ratio?

Equity multiplier

Use the slides he actually went over, not the summary table.