James C. Van Horne John M. Wachowicz, Jr.

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Pearson Education Limited
Edinburgh Gate
Harlow
Essex CM20 2JE
England
and Associated Companies throughout the world

© 2001, 1998 by Prentice-Hal!, Inc.

© Pearson Education Limited 2005

This translation of FUNDAMENTALS OF FINANCIAL MANAGEMENT, Twelfth Edition is published arrangement

with Pearson Education Limited .

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 To Mimi, Drew, Stuart, and Stephen
James C. Van Home

To Emerson, John, June, Lien, and Patricia

John M. Wachowicz, JR.
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Jean Bellemans, VUB, Belgium
Enrico Gallina, The European School of Economics, Italy
Peter Went, Bucknell University, USA
Michael Woatich, The Netherlands

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''A manager's real responsibility"© Financial Times, 30 January 2002;
"Companies go back to basics in search for cash" ©Financial Times, l October 2002;
"A deal with strings attached" © Financial Times, 18 July 2002;
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©Joe Fuller and Michael Jensen.

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April 30, 1997.
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Harper Business, 1991.
Treynor, Jack L. "The Financial Objective in the Widely
Held Corporation." Financial Analysts Journal 37
(March-April 1981), 68-71.
Part I of the text's web site, Wachowicz's Web World,
contains links to many finance web sites and online
articles related to topics covered in this chapter.
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li.:i(Qo(3 m .:i<"loli 8:JOlMIQOli G3c:::>o(Qo, MM8.:i30 8001M1Qoli.:ili od6oo.:i 2, n .:i(i)oli .:id003oli .:i8Mr1@)0-
'b0Gooli (QMM l!(o NBV .:ir1oli .:id@.io3oli 0806(.Qo li.:io.:ic:::i06lif'l oc:::ioli (Qoli.:iotiolioo.
liooMobc:::ioli 8dM6Q $10,000-oli .:id@.io3oli .:i8MM@.Jo'b0oooli
onc:::ili DDB 8:J01Ml!(OU 008f'ltJ:J6ooom od6no.:i:
2(1/5)$10,000 = 4,000$
l'\30 61.i 2(1/5} ,,'Bodl>o<"loo()c:::i .3r1Moo6@.Jli", 06() 40 3MMG:J60li,
0 .:i8Motio6oo.:i 08061!(0 60r1f1060
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d[J01Q8Q6G 6000$. o8MM0o'b.:ioo.:i 8:JMMQ od6oo.:i:
2( 1/5)$6,000 = 2,400$
21
 2(1/5)3,600$ = 1,440$

O?<> <>ho 0080?00·

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10000$, fl3n60
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$

0 $10,000
1 (0.2)$10,000 $2,000 8,000
2 (0.4)$8,000 3,200 4,800
3 (0.4)$4,800 1,920 2,880
4 $2,880/2.5 6. 1,152 1,728
5 $2,880/2.5 6. 1,152 576
6 (0.5)$2,880/2.5 6 576 0

61CYJ8 66)'Bo30 <>8MM8o'b.:.oo.:. 8nCYJmbo (.Q<>U<>D8ohClo 6806!!?"

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.:.d&n3oh013oh (6<>bom 2.1), b.:.'l>o6oli aooM .
Mmbo J<>808MMooh .:.d&o33ooh <>8MM8o'b<>(3ooh d308Mm .

22
 2.

3 61.:'.;'0.)60 5 61.:'.;'0.)60 7 61.:'.;'0.)60 10 61.:'.;'0.)60

1 33.33%
2 44.45 32.00 24.49 18.00
3 14.81 19.20 17.49 14.40
4 7.41 1l.52 12.49 11.52
5 11.52 8.93 9.22
6 5.76 8.92 7.37
7 8.93 6.55
8 4.46 6.55
9 6.56
10 6.55
11 3.28

100.00% 100.00% 100.00% 100.00%

ob R30 6o lfo60
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Cln8b(Ji'>(Jd::Ji'>nb 2003 800Goo .3!'1o'bo!Qo6@.l80
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0061Qoooli Cl?"o:Jo830G do!'1om<>!Qo Jo!'1(Y)o0 .:i<"ioli ,,o(Y)Ei()li(]Mo .:i8(Y)<"i&o-
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(]9JM(Y) G08(Jo<>(Y) ood86oli Cl?" IQ<>b80<"ioooli 2002
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23
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8"!.Q<>U<>b<>!.Q:JOOU8<>6 8 • li.:i 0.:>!.Q.:>U<>b<>!.QM JMti1.3Mti1.:>(3oooli
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24

Capita! gain!foss -
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.:.6 0.:./Y)oonooo .:.un3n 8.:.m'bn, 8.:.u o.:.Mnt:!?oo-
6Mu. (])() oao 15.:..:.onou oe,o C!?.:>J.:>Ma.:.3u m.:.3ou jM6no.:.u,
0806!:!1.:. on.:.!:!18n6u 467,000$. m(J .:.P'i 8Mbt:!?no.:.
OQO 8.:.o6G oj6no.:. 90,000$ m.:.3ouo JM8.3.:.6oou m(J
!Y).:.o8n 8o'bn'bom o0 o 3nP1 0 .:.C!?.:.bt:!?.:.u .
. 8.:.6 JOC!?n3 C!?.:>J.:>M 0 MU .'3o!Y),:,C!?o 0806!:!1.:. .:.j803noo, P'i.:.8C!?n6.:.C!?.:.G
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m.:.6bou C!?.:.U0'?.J.:>M.:.C!?, 600 000$ - 36 000$ =
564 000$. !Y).:.8C!?n6.:.C!?.:.G .:.8 MP'io .3.:.P186oMP'iou .3oP1.:.C!?o .:.j803noou U(J'?.Jm.:.
a.:.6ub3.:.3C!?no.:., 8.:.m ,:,/Y),:, .:.j3m m.:.6.:.o.:.P'io MOUJO. 3n6P1o 6noou8onM on8mb3n3.:.oo C!?.:>J.:>M-
8.:.3u 8n8u.
0 . 'tjMM8ou 0 .:.8MtJD6noom 8.:.6 C!?.:>J.:>M 0 MU :JU oo'b6nuo.
U.:>J(Jm.:.P'io JM8.3.:i6oou O:J.:>C!?on6u 263 000$ - 90 000$ = 173 000$, nu m.:.6b.:.
o.:.P18M.:.C!?o:J6U 3n6P1ou oo'b6auoo .3oM.:.C!?o '?.J06.:.6U(JMO UOC!?OC!?:JU. 8ouo
.:.j8o3noou 6.:.P1Rn6aoou 0806!:!1.:. 467 000$ - 173 000$ = 294 000$, JMM.3M-
'?.JMM8ou 0 .:.8MtJD6noom nu oj630.:..
2. 0 .:.8f"lj3om3.:. oj630.:. on8C!?aoo:

oOl!!:'O
I 20.00% $ 3,200.00
2 32.00 5,120.00
3 19.20 3,072.00
4 11.52 1,843.20
5 11.52 1,843.20
6 5.76 921.60
l.i';'.Jl!!:' $16,000.00
----·---

a. 0. 2 100 baUbnO'bn oJ6n0"

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u.:.o.:.'bMf'l .3oMf'lO:JOO (JJ0M6.:.b3ou, MM8 3% .:>MOU J33C!?" U.:.C!?a-
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C!?.:.litl'oP'i!Q:JO.:> CJnum.:.3.:. 'bf'JU 3,5%-0.:.60 li.:.C!?a.3f'l'bo8f'l 0 060J3:Jmo,
0 06.:.J3:Jmo o.3f'lm:JJ(JM linlib:JO'b:J - 6.5%. P'i.:. mj8.:. (JGC!?.:. ub30 .'3.:.li(]b:JooG
.:iP'ioli e,08f"l8C!106.:.P13 08 8f'l8:JOOC!?.:.6, e,li(JMO)
6. 1%-oli 8f'l 0 30.:. 0.:.C!?.:.li.:.b.:.C!?ou 0.:.C!?.:.bt:!?.:.8C!?a 100 unub'b3 1 $-u.
Li C!10808aoomo .:.Li.:.b.:. 3u P'iol>Ju C!?" .:.8 8 oP1 3oG
CJa.:.C!?o:J6U 9% - 7,25% = 1,75%.
C!?.:.8.:.83oomo 0u.:.b.:.3u 0.:.C!?.:.bt:!?oli (J'?.JMf'l
3.:.C!?.:.li, on.:.C!?o:J6u 7,25% - 6% = 1,25%. .:.8 CJ38mb333.:.CJ0 P'iouJo !Y)R300
.:.u33:J P1Rno.:. 0803:J·

40
Choosing a Business Entity in the i990's. Washington,
D.C.: Coopers & Lybrand, LLP, 1994.
Fabozzi, Frank J., and Franco Modigliani. Capital
Markets: institutions and instruments, 2nd ed.
Upper Saddle River, NJ: Prentice Hall, 1995.
Fleischman, Gary M., and Jeffrey J. Bryant. "C
Corporation, LLC, or Sole Proprietorship: What
Form is Best for Your Business?" Management
Accounting Quarterly 1 (Spring 2000), 14-21.
Friedman, Samuel J., and Steven D. Goldberg.
"Selecting a Form of Business: The Trend Toward
Limited Liability Companies." The Small Business
Controller 8 (Spring 1995), 11-16.
A Guide to Limited Liability Companies, 3rd ed.
Chicago: CCH Incorporated, 1995.
Hartman, Joseph C. "Technical Note - New Deprecia-
tion Rules for the Job Creation and Worker
Assistance Act of 2002 and Their Impact on Capital
Investment." The Engineering Economist 47
(Summer 2002), 354-367.
Kidwell, David S., Richard L. Peterson, and David
Blackwell. Financial Institutions, Markets, and
Money, 7th ed. Fort Worth, TX: Harcourt, 2000.
Rexner, Christian, and Timothy J. Sheehan.
"Organizing the Firm: Choosing the Right Business
Entity." Journal of Applied Corporate Finance 7
(Spring 1994), 59-65.
Rose, Peter. Money and Capital Markets, 7th ed. New
York: McGraw-Hill, 2000.
Van Home, James C. "Of Financial Innovations and
Excesses," Journal of Finance 40 (July 1985).
- - . Financial Market Rates and Flows, 6th ed. Upper
Saddle River, NJ: Prentice Hall, 2001.
Part I of the text's web site, Wachowicz's Web World,
contains links to many Snance web sites and online
articles related to topics covered in this chapter.
41
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44
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01036011(06, ob;i33 80b'b3 .3!Y101oo60001.i J0GM6Mo(Y)oob ()!QOCQoL> 00a(Y) 0 016oo0u.
b0&laaoc::;ol> .3!Y101 8 o6&ooob J(Y)6Go'BG00li U?OCQo 003 u 'Bo505u(J!Ylo 80mo80@>0Joli
0106bn(Q06.

45
 60!!::'0
063al>i!lJn<'lnocic::>n I $-nl> 2 1.16 1.17
8M8>3>c::>n c;n<'>nocic::>no> 20 2.60 4.66
bb3>1!;!>bb3> l!;!MMob
d:JMOMl!;!dO, Oc::>OCJMO 8% 200 17.00 4,838,949.59
u><'>0noc::>nl> 3>6>J33mn

0.:.0nooli013oli. oli 8:JM8o6o 01.:i3oli01.:.3.:i(l? .:ic:6006.:.3li, MM8

0"!:l?"ob!:l?:Jo" (0.:.8(Y)8()o" 3!:l?Do") t.i 0t.ib'ho (o6 3ot.i&o 8 o.:i'ho), 080<!!Jno0 010361.i.
O:J(l?D0"!:!?' :JM0(3b:JOC> M(Y)0MM(3 010361.i, .:ilio3D ,,.3M(Y)-
(3:J6<!!Jo-.3M(Y)(3D6<!!J 'ho" .:.6 (l?C>M0(3b3.:i (J'h.:.6>8.:i 'b.:.6> 3061.ib3.:.30001.i 8.:.P1-
<!!Jo3 !:!?" .3P1(Y) 8 o6<!!Jooli oMP1oli. M(Y) 0{Y)P1 8 36.:ib.:. 301, .3MM(3:J6<!!Joooli J(Y)6GD'BGo"
od6oli '806061.i()Mo .:.8(Y)(3C>60001.i 'B"M01(Y) li.3od<!!JP1oli

(.:.6 (l?C>li.:iotiolioli013oli lio<!!J(J"(300, M(Y)(l?:Jli"G

C>(l?C>80060 .:.01.:.31.iooli 100$ 063.:.P1oo'hn. 01() 3.:i6"J30010 .:.P1oli 8%,
(JMO (l?C>M0(3b3001, MC> nc:oP1000 100$ 1 008!:l?a0? .:.8 .:.8M(3C>6oli .:.8(Y)bli601.i013oli,
R306 08(Y)3bli6001 .:.63.:.6>0001.i ( R306li 00801b303.:ioo,
(l?C>30Md3.:.01 .:ilio30 (FVi).
FV, = P0(1 + i)
= $100(1.08) = $108
li.:io6<!!J:JM:Jl.i(Y),:,, M(Y)8 .:.8 C>Mol.i 03030 M0(3b30, MC>(3 R306 803oc:n01
8.:iM<!!Jo30 .3M(Y)GD6<!!Joli 3.:.8(Y)tJD6nooli 008cnb303000. 8.:.3M08 8li303lioo.:i 0d 801.:.3M(l?:JO.:i.
MC> 8(Y)b(l?:JOC>, 01() 1!?"38(Y)3D001 100$-1.i (l?:J.3(Y)'bo<!!J'bo (Y)MO 8% (l?C>M-
0(3b301.i 308(Y)tJD6Doo01 li.:iotiolio 100$ (l?:J.3(Y)'bo<!!Jo 3.:io'bM(l?:J00 108$-8Cl?D 8:J(Y)M:J
108$ 3.:ib!:l?oo0 116,64$, M.:.(!?306 8$ .3M(Y)(3D6<!!JoG li.:ibo01 :JMoGboo.:i 1.i.:iotJol.i 100$ Cl?" 0,64$
:JMoGboo.:i 8$-1.i .3M(Y)Go6<!!Joli li.:ibo01 R306li .:.63.:.Moo'bo. lib30 lio<!!JtJ3Doo01, .36i(Y)-
GD6<!!Jooo :JM0(3boo.:i C>(l?MO .:idDC!?"6 8M(l?Ol.i
.3M(Y)(306<!!Jo . .:ilio01 30010Moo.:ioo 8o(Y)M:J od6oo.:i:
FV 2 = FV 1(1 + i) = P0 (1 + i)(l + i) = P0(1 + i) 2
= $108(1.08) = $100(1.08)(1.08) = $100(1.08)2
=$116.64
801.i.:.80 .:.63.:.6>000 30o'hM(l?:JOC>
FV3 = FV2 (1 + i) = FV 1(1 + i)(l + i) = P0(1 + i) 3
= $116.64(1.08) = $108(1.08)(1.08) = $100(1.08)3
= $125.97
doMo01C>(l?C>(l?, FVn, (!?0.3M'bo<!!Jol.i n .30MO(Y)(l?Oli01301.i .:.6>01.i

FVn = PoO + i)"

FV0 = Po(FVIF;,u)
li.:i!:l?.:.G R306 33.:.6>.:i(J(l?(Y)001 FVIFi,n (.:.6() 'B"d<!!J(Y)Mo i%-
001 n .3:JMO(Y)(l?OliOJ301.i ¢he fi1ture value interest factor at i% for n periods) (1+i) 0 • 3.2
6.:.R306000.:i ·R3060 .:.8M(30601.i 8obo!:l?3001
Cl?" 80-3 ()R306ooli .3M(Y)(3D6@>oli (l?C>Mo(3b3.:ili (JJ3D
.3M(Y)Go6<!!Joo'hn. · ·
Cl?":Ji:"8:JOC> (3.4) b(l?oli . .:.8.:.1.i
3.:.6>(!?.:i, ( 1+i)" - FVIFi,n - i (!?0 'B"MOJ(Y) Cl?o.:i.3.:i'b(Y)6oli
. .:.8 (ooli.:.00801.i.:i(l?)

46
 .'31'1l'lGD680 o03f'l8'Vo030o'ZJC:::O
Li.'.lol:louo ::iOl'iOf'ltl?Oli 00Ga03c:::f'lo0ao u.Jof'lC:::f'lf'l
0ti0bvc::>n0 !'iimvc::>n
J!'ii"'GDG&oonli ll/0!'iioeb30 oDC:::O ffi06b0 ffi06b0
li06w,lio I 00$ ll/DJ"''bn&nl> 1 $100.00 ,$ 8.00 $108.00
ll/0 Oc::>O(JMO 8% -0060
2 108.00 8.64 116.64
0060J3omnli i'lo8mb3030lln
3 116.64 9.33 125.97
4 125.97 10.08 136.05
5 136.05 10.88 146.93
6 146.93 ll.76 158.69
7 158.69 12.69 171.38
8 171.38 13.71 185.09
9 185.09 14.81 199.90
10 199.90 15.99 215.89

(FVIF;,u) = (l + i)"
{ $-nl> 8018030c::>O Cl1'1f'JGD6tll>'ZJC:::O 0060J3DOJO
.'3D1'10f'lt!?O 1% 3% 5% 8% 10% 15%
'l30d&"'l'iin
n Jol'iin011l/nG ""'c::>"'l> l l.010 l.030 l.050 l.080 l.100 1.150
(FV!Fi,n) i%-nl> Jnl'iif'16nm. 2 1.020 !.061. l.l02 1.166 l.210 l.322
3 1.030 l.093 1.158 l.260 1.331 l.521
4 1.041 1.126 l.216 1.360 1.464 l.749
5 1.051 l.159 1.276 1.469 l.611 2.0ll
6 l.062 U94 l.340 l.587 l.772 2.313
7 1.072 1.230 1.407 l.714 l.949 2.660
8 l.083 1.267 1.477 2.144 3.059
9 l.094 1.305 l.551 2.358 3.518
10 1.105 l.344 1.629 2.159 2.594 4.046
25 l.282 2.094 3386 6.848 10.835 32.919
50 1.645 4.384 11.467 46.902 117.391 l,083.657

.3MM(3D68oG JMD'?.J0(30D68oG (.:iG dMM(3D68oG J"18<(30(30D68oG)

(3.5) 3.3 o.:ifii8M<>(Q()D5G
8Mo(3.:i3G Gb3.:iu:.:iGb3.:i 0.:i5.:iJ3001G 1-u:.:i5 15%-8u:o· .:i8
0 .:i5.:iJ30010 (i) u:<> .3ofiioM(!?o (n) J 0.:i3G <"ivJoG JMMM-
u:o5.:i<!!JooG. oGo5o 03ob8.:i<"iooo.:i6 0 .:i5<>J3D010G ooG.:io.:i8oGo JMD'?.JOGoo5<!!Jol>
8Mdoo5.:iCJo. JM0<(30(3006t')o 8%-001 9
o8tJM'?.JOO<> 8%-o.:i5o l>3080G 80-9 .3ofiioM(!?OU 80J<"io3ol>
u808 o.:iao !!?" 1,999-L>. 8G fiio 8 b3o 1,999 5oCJ5.:i 3u, fiiM8 o5 38 -
o<"i010 8%-001 .3MM(3D50oool> (!?<>M0(3b3ol>
Clo801b303.:iClo 9 01d306 2 8M0o@J.:i601; oG 01.:i6b.:i 8M0(3<>3l> U.:>btJOU
01.:i6b.:il> .3MM(3D5@Jooo (\'.J'?.JMM .:i8 000-
Gol> Q?.:i6.:i<"i01do 1).
mv fi306 .:i3oc;oo01 FVIF-ol> JMD'?.JOGoo5<!!Jl> 1$-l>013ol> 8%-o.:i6 l>308Clo Q?.:i
8.:il> 100$-'b8, R30 s 8o 3oc; 8001 <"io 8 b38 ou 0.:ifii 0CJ 0), CJ 80 u.:io.:i8 8o.:i
· 1OO$-ol>013ol> fi306l> 0.:i8M.:i60.:ifi0Cloo.:il> 3.2 l>3o@JClo. 80.:idG0001 tJ\'.JM<>tQc;oo.:i 08
0.:i<"i 08M 0o.:iu.:i 8 , fiiM8 M<"io .:i5 8o<!!Jo CJ 0G.:io.:i8ol> 80Jf103Clo, .3f1M-
'bM(!?,) b!!?oo.:i Q?O(QO, M.){!?(\.:i5 o'bfiiu:oo.:i 0.:i6.:>J30010. l>vfii.:i010
a?"oDb8.:if1M01 .:i8 li.:iJ001boli 0.:i000.:iClo. Liv<"i.:i01'bo 3.1 fi306 .:i3li.:ibo01
'b<"iu:.:i li.:i6tiolio 100$-oli u:.:io.:i6U?oooli013oli 5, 10 !:!?.:i 15 dMM(3::J58o.:i6o li.:ir1000-
0.:i6.:iJ3001oli 0o<"iMooOClo . .:i8 livr1.:i01ou:.:i6 fi.:i5li, <"i.:iG 8080<> 0.:i6.:iJ30010, b.:i'bo
8001 \'.)<(3MM ob<"ioo.:i 'bo3001, Cloli.:io.:i8oli.:iQ? o'bMQ?DO<> . .:i8.:ili
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47
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0<>8f'1(3C!Wo'ba md3a6 8M0 £JOMQ?:JO.->m

Q?."> od6aoom a.->8f'10tf:J6f'lm doMOO'lo.'>Q?O /)M.)dMf'l•
<>8o8M8 J.->M 0 o od6ao<>, mv J.->tTl 0 .->Q?
0.->a(36Moom
'bt'iiQ?.->. 8ovbaa?"3"a? o8ob.->, Mf'18 .-,3.-,aa?a doMOO'l0Q?0Q? R3a6 a30068£JM:Jb:JOQ?0 b.">M(>:JO-
006<>J33m300, .->b£J3D 0030 0Mm, Mf'18
001> a<>8f'lOtJ:J630<> 63oob8oatTio 'bMQ?Ob b<>b:Jf'lOobm3ob: 'bMQ?0
036'bo6'b3, 0 1>Q?<>b<>b1>Q?' b :J, 8f'1 0 no<>'ba Q?I> t!?o 3oa?a6a?no'b 3.
0?"3()031>m, tTif'J8 Jf'lM.3f'ltTi<>ooob Q?o30Q?36Q?o 0300?aa6b 10$-b 3tTim <>don-
..,'ba, a..,0 tTi..,a R33 6 ...,a O?o 3oa?a6a?aoob 'btTiQ?<>b 10%-0060
0 060J33mom. 038Q?3 0o 5 Q?030Q?£J6Q?DOo 0 00'bMQ?£JO<> ob£), Mf'l(>f'1M(3 :Jb
6<>R3a6aoo0 d3:J8f'lm
50!!!:'0 Jf'I0'8ooooGl!!iOu 'b<">C!10 af'lu.'.>t!!:'f'lll?GO!!!:'O ll?030ll?OG!l?0/50t!!:'O
..
1
1 (1.10) $11.00
2 (1.10) 2 12.10
3 (l.10)3 13.31
4 (1.10)4 14.64
5 (1.10) 5 16.11

f790 otjo!J(."> 8ollol.i

6.">J33mo 1 .->Jl'lio
.&lil>J:J<nl> 033!1'io .:.aa31>tlio 'Bal>t1oi:e31>. M/) ad630ftll.li!I><» 8ol>
2005 O>(J 8olfol.i 61>J33mol.i tfOl.li!3ol.i 1>1.ic!!JftlMo
a.:.61>m1>3l>3Ci;e1> m.:.301.i 58$ 1>6a1>tlio'B'ha 5

48

:JfiM(3J60CJc;'O (GoM-
oJ<'>c;>ol> CJJCJG3c;>n010)
(1060J3J010, fi018oc.;>0(3
0 0801nuo6noo
c;>J<'>om 2,>6bo
uom30G.
5"0350[; OMe::.'01[; t;Q06.::iCii01Clo 0MU:JO(Je::.' 1 obCiioe::.'dO !1306 3:JM 30:3M3001 $1-oG FVIE-li 215 be::.'o[;
Cl:J8Cl(:Jo tie::.'o()Ciio 5%-oG .3oCiiMooOClo. f13a5 35i>b03m 1$-ob FVIF 50 tie::.'ol> Cl:J8Cl(:Jo .::iCiioG 11467
(!(0 1$-o[; FVIF 15 tie::.'ob Cl:J8Cl(:Jo - 2079. ab 0fi\ob, Cii00 01j3a6 0005@J:JM:Jli:Jo(!(w1. 01() !1305
3oj500001 011Q503 Clo8M8d8a(!(:JC>n, CJ 03de::.'aom .::i8Mo050 .::i8M3bb5001 Cla8Cl(:Jo600Cii0(!(:'
FVm = P0 X (I +
P1., X (1 + X (1 + i)50 X (l + X (l + i)5° X (1 + i) 15
$58 x x x x
11.467 l l.467 11.467 11.467 2.079 x
= $58 x 35,946.26 $2,084,883.08
8M(3:J8()e::.'0 8081Qo60til:J 80001.i <(pbo\; 0 00130e::.'o[;\506:J0001, bo(J-OMMJob (3:J5@JMOO f10f:i[;,
MM8 0b@JMtiloli 0 0(!(0btJ3D@Joe::.'0008 8otiob 50J3nmob 1 0JMob Cl::idn60'b3 0 0()0e::.'P1 Cl(MMol>
008M(3(!(0U, MM()MM(3 otild5'()e::.'80 063ab@Jo(3000. b.:io!i@J:JM:JUf'l.'> 0ba30 0c:;36006Mm, MPJ8
061(301() tilm'()e::.'O ()0bboe::.'3001, f13:Jb (Qi>()3tf;o61\Q0 O:J'bc::''()\Q()e::.'0 801fo(3:J8:JOOU ()08PltJ:Jb:J00,
MPl8:Je::.'0(3 8M(3:JO(Je::.'00 3.3 (3bMOe::.'00. .
0801.i 8lic,03b0!:Q, f1306 c,063b.:>'lie:;3MMm ub30 G3e::.'0CQO 8M8030e::.'o CQP160000,
MM8oC'.'..'m0 'bMCl(0(3 od308CQ000P'ioo0 Mm(JC'.'..'0 .3MM(3060oooli J06M6l.i. oli .3Mo6oo.3o
0 06l.i0J(Jm<Yiooom 0()(30C'.'..'OOOC'.'..'o oj6000 f130\:JC'.'..'00Mo30 0joooli JMbJMO@J(JC'.'..'O
8MCQOe::.'Oooli 0 06\.i;,'be:;3<Yiolim3oli oo8Cl?Oo m03Clo.
808CQ0606Jo (06 CQOUJM680M[JO(IC'.'..'0) c:?OMOO()C'.'..'[]00. 11305 tl30e::.'0li c,3oli8oli, MP18 1Qe:;o306!:QOC'.'..'O
'B'()C'.'..'o ()<BMM d306'10 r:;oMli, 301:QMO ot'0mo, r>1Mo 06 b080 5e::.'oli oo8Cl?Oo 8oc:;oo'()e::.'o 08030 610P1CQ06M-
ooli 'B(JC'.'..'0· 8M8030C'.'..'o 'B(Je::.'0(QO 60J0CQOOOU 0be::.'06CQOC'.'..'O 0 08M06 0 0/000000
\.i,)O(J0e::.'000\.i 0 30dC'.'..'03\.i 8M30m03liMm tl30C'.'..'0 '?3(JC'.'..'0CQO boJ0CQO 8o8CQo60MO \.i,:,'B(Jd30C'.'..''tJ0,
MM8oC'.'..''boo H30C'.'..'0 dOCQ0M000 EoodC'.'..'000 o"J001CQ0b CQC::.'.J306!:QOC'.'..' 'B(JC'.'..'m06 dOCQ0MOOOm.
80813?0601"10 c:?oMOO(JC'.'..'0ooli JP16(30'(JGOol.i 0 00 0008 l.i0d'()0C'.'..'000 ()613?0 8MC,3(30li 3(Jd0U(JbP1m
08 m03ob CQ.:>li,)Oi:joliClo CQ.:>li8()C'.'..' Jomb30li: 100 0 ol"lf103600m 1000$, CQe:;oli m(J 2000$ CQl';OOCQ06 10
5C'.'..'oli Clo8CT?oo? 2 CQ"3".'.JCl30m, MM8 MM030 m06b0li 8oor:;oom ()0B'30C'.'..'"CQ, 08 m06boli mj3060
0C'.'..'@JOM60@Jo(JC'.'..'O JO .:>Mob 8% 60C'.'..'060CQdo (l.ib30 lrn@Jti300om, mj306
00 0 t.i Lib0m 06 0 0c,oliolib.'.Jon60m 8%-0CQ)· Q?e:;oli 8oc:?oo(JC'.'..'o 1000$-oli 0bC'.'..'06Q?oC'.'..'o r:;n/0 0-
o(JC'.'..'.'.Jooll 0 06li0 'bQ31"10 061 .:>Mob l"lm(JC'.'..'o: Sol.lo r:;nl006(JC'.'..'Oo00 1000$. 01c;98(30, 100 QnMli CQe:;oli
2000$, i"lM80C'.'..'ll00 f1306 8030Qo6m 10 5C'.'..'oli Clo8CT?oc,? 08 0omb30'lio .30li(Jbnb 0 0ll0eo80!:Q,
Cloc,3ndC'.'..'00 30JombMm lib3,'>600M0CQ: CQC::.'.J306!:QoC'.'..'o 1"10 m.)6b0 800e:;l503li 10 5C'.'..'oli Clo8CT?oo
2000$-8Q:?O M01(JC'.'..'o 5C'.'..'o()Mn 8% l.i0M 0 JOC'.'..'oli CQ.:>Mo(3b3ob 0ol"Jp-,oooon? 08 m06b0li ObMCQ000
2000$-ob 0bC'.'..'06CQoC'.'..'o Qn<Yioo(JC'.'..'000, MP18oC'.'..'oG c,0CQ.:>bCQoC'.'..'o (J6CQ0 oti01li 10 5C'.'..'ob Clo8CQ.'.Jo 13?"
CQOliJMb@JoMoo(JC'.'..'O 8%-060 c,060J3omom. 8M(308(JC'.'..' 08M(30b0d0 li0i"lc,00C'.'..'oli c,060J3omli 'bM()-
fe.'.JM 06"1CQ000 CQOUJG50niYlo6ob 0 050J3nmo (06 0.;50J30010).
0bC'.'..'06CQoC'.'..'o (06 CQObJP15@Jnl0oo(JC'.'..'o) c:?oi"loo(JC'.'..'.'.Jonll 0 06li0 80!0eo30CQ 0!0nli l"lm(JC'.'..'o
.3MM(3.'.J50ooob .3nl"lojomo CQ0Mo(3b30. 08o@JM8 8MCQOO'> fe.'.JM CQ03(JOM(J6CQom 3.4 0 06@JP1C'.'..'Oo0li:
FV11 = P 0(1 + i)"
G3C'.'..'"!3?0ooli 0 0ci:;060e3C'.'..'ooom, f1306 803oc:?oom 0bC'.'..'06i:QoC'.'..'o r:;oi"loo(JC'.'..'Oooli 0 050MC'.'..'Oo0b:
PVo =Po FV11 /(1 + i)"
= FV11 [1/( l + i ) 11 ]
tl(JM0CQc:?OO.:> 800jooom, i"lM8 .3ol0Mo.0 [l/(l+i)"] 0!0oll 8M8030C'.'..'o c:?oi"loo(JC'.'..'Oooli JPl0'Boooo6enli
Cloli0008olio i%-om n 0ol0001CQobm3oli (FVIF;."). 08 00G0008nb boCQOCQOli 00MCQ000 - 0bC'.'..'0bCQ.'.JC'.'..'O
r:;o10oo(JC'.'..'.'.JOob JMO<anono50o i%-om n .30P10P1CQ.'.]Onbm3nli (PVIF,,11 the present value interest fac-
tor at i% for n periods). 08 0r:;60Cl36nli 0 08M(J36ooom CloodC'.'..'000 0 013?035o1"1Mm 3.6 0 06@JMC'.'..'MO.:>
CJo81:Qoc,60ol"l0!3?
PVo = FVn(PVIFi.n)
0bC'.'..'06CQOC'.'..'O c:;ol006(JC'.'..'OOOb dM36oli obl"lnC'.'..'O 000003\.i PVIF lioCQO!:QOli .31'1M(30b@J(JC'.'..'0
49
 (PVIFi,n) = 1/(1 + i)"
1$-ol> o.'.>6.'.>J33ffi0

J"':J'1J0(30:J68o i%-001 [!1.) n :J3M0rJC!?O(n) 1% 3% 5% 8% 10% 15%

.331'1001C!/ol>013nl> (PV!Fi,n) 0.990 0.971 0.909 0.870
0.952 0.926
2 0.980 0.943 0.907 0.857 0.826 0.756
3 0.971 0.915 0.864 0.794 0.751 0.658
4 0.961 0.888 0.823 0.735 0.683 0.572
5 0.951 0.863 0.784 0.681 0.621 0.497
6 0.942 0.837 0.746 0.630 0.564 0.432
7 0.933 0.813 0.711 0.583 0.513 0.376
8 0.923 0.789 0.677 0.540 0.467 0.327
9 0.914 0.766 0.645 0.500 0.424 0.284
10 0.905 0.744 0.614 0.386 0.247

3.:i6.:iJ33013ool> 13?" i:J?MMol> a3p;oMi:J? 3ool> 'B"M01M l>.3 3j&(i)oi.>01 301.>, (i).:iG 01.:i3oi:J?.:i6
.:i60.:i(i)oCJ30.:il> (3.6) MMi:J?:Jl><>G R336 8M3306"33l>
.:i8M(3.:i6ol> .:i8Mbi.>6.:i. 3.4 6".:i(i)8Mo13?036l> .:i8 03.:i(i)o
33(i)l>o.:il> ('(J'BMM 33(i)l>o.:i ob.13?.:i6.:i(i)01Clo) .
R336 0 .:i8M301:J36M01 (3.7) 13?" (3.4) MM8
2000$-ol> R336 10
Clo8i:J?3o 8%-ol> 3.:i6.:iJ3301Clo. 3.4 8%-0060 l>33®ol> 8"!3?"J3301.:i 10
.33MoM13?ol> 306030106 PVIF 8%.to - 0.463. 31.> 833 '(Jo63o.:i, MM8 46 8 36®0
10 Cl3813?33 oj630.:i 1$ . .:i8ol> 30330001, R336
PV0 = FV 10(PVIF 8%.io)= $2,000(0.463) = $926
01'() Cl33<>i:J?<>M3001 .:i8 0106b.:il> (926$) 1000$-l>,
R336 R336 .:i3o(i)R3301 1000$-ol> . .:i8
Cl3801b333.:iClo R3360 8M330.:i oj6::io.:i 74$ {1000$-926$).
001j3.:il>, MM8 6.:iJ<>13?3ool> i:J?OUJM6®o(i)30.:i J3.:i3l>
.3MM(33l>l> {handicapping). l>b3.:i l>o&tJ330001, 800138.:i&oJ'(JMO
R33 6 6<>J<>i:J? 3ool> CJ 3'B.:ii.> 36.:il> 808.:i(i)0136.:iClo.
.:i8M(3<>6.:iClo
Cl3'B.:il>13?3l> 46 G36&001. M<>G '(J'BMM 83&0.:i 6.:iJ<>i:J?ol>
Cl3l>.:io08ol>o JM3'BoG036&0 (PVIF). 3.2
l>'(J(i).:i010 '(JR3363ol> i:J?MMol> 13?" 3.:i6.:iJ3301ol>
. .:i8 U(JM.'.>01'b3 R.:i6l>, MM8MM
100$-ol> 1-13?06 10 l>.:i8o 3.:i6.:iJ3301ol>: 5, 1013?" 15%-ol> i:J?OUJM6®0M3ool>
8ob313?3001. ol> 330R3363ol>, MM8 100$-ol> 8(30M13?30.:i
3.:i6.:iJ3001001, M<>(3 (J'BMM Cl3l>.:io.:i8ol> 01.:i6b.:il>. (i).:i
01j8.:i ()6i:J?.:i, M<>G 83&0.:i 8 .:i6.:iJ 33 010, 8001
8.:i3(i).:i8 8001 (J'BMM 838<>0? 8(;)(Ji:J?l>· 15%-o.:i6o i:J?OUJM68o(i}3-
ool> 3.:i6.:iJ3301ol> i:J?MMU 100$, 10 006 oj630.:i 24,70$-.:ii:J? .:i6
25 (336®0

8.:i(i)®o3013?. 3M01.'.>13?:JM010 M.'.>(3 8M3301bM3:J0<>01, ()613?.:i

111M8 8.:i6 R.:ioM01MU
<?jMM8.:iClo. i:J?"3()Cl3.:i01, 01j336 .:io.:i613?3001 1000$ .:i63.:ir;JoCJ'b3 M01()-
6%-001 CQ.'.> 0 U(JM01 0 .:io&.:i6M01 01j3360 i:J?.'>6.:i'bM0 o 15 0133CJ0
1.25 (i)0813?:J6<>13?.'>(3 FVn = P0(1 + i )", 15 01301.> Clo8i:J?:J8 01j336 8Mb-
l>6.:i01 01j3360 .:i60 .:i610Clo13?.:i6 03813?330 01.:i6b.:i.
FV1.25 = $1,000(1 + 0.06)1-25 = $1,075.55

50
 100

90

80

.r,;, 70
tO
0
El 60
f:l
tO
0
c 50
El 10%
c 40
0
El
et
!.O
15%
.r,;, 30
El
.:£>
.r,;, 20

10

100$-l> "bc::>"60<3c;:>o
0
c:;nrii3o(Jc;:>:J6" 5%, 10% 1 2 3 4 5 6 7 8 9 10
<!?" 15% Oc;:>O(JfiiO
fiicr>(Jc;:>O :JfiiM(3:J6@Jnb
008mb333.>tln.

()G6('t)OO (<>6 0 060J3[1mo. CQMMnli 8nb[lCQ3nm

006b0'bc:;3Mnli0b, f\306m3nb (Qi>
Cf?<> CQMMnb .3oP1nMCQOOnb M<>M!QOOM00, 80 0M08 0 3006<1)0Moboob,
li1rri 0('t)M00 006<>J3ocnn, .3M('t)(306<1!Jnb (i) l.Q<>Moeb3ncn.
1Q<>3()Cl30cn !i1('t)8, m() md306 U?c::ob oJomoocn 1000$-nb n630<1!Jne00b, 8 Clo8U?oo md306
8nnc:;ocn 3000$. .3M('t)Go5<1!Jnb (06 006"J3ocnn
8('t)odoo6('t)b 06 b.:ioo'b('t) 008('t)tio6ooncn.
3.5 008('t)tJ060oocn f\306 0 30j3b
FV 8 = P0(FVIFi.s)
$3,000 = $1,000(FVIFi,s)
FVIFi.s = $3,000/$1,000 = 3
3.3 8 .3o6lo('t)l.QOb CJob0008obo 80JM03ob 00!Q0J30mob nj6000
J('t)O'B0(30:J5<1!Jb (FVIF), 06lob f\306b 8oot'il
3-m.:i5. f\3051.i .:ibocno J('t)O'BoGoo5f!!>n <>Mob
3, f\306 15%-nb Clob0608ob b3o<1!JClo. M<>81Qo60l.Q0G 3,059 80<1)00 3-'bo,
f\306 3obJ36001, M('t)8 0<>foJ3001n bn<1)()0(3n<>Clo dnMnm0CQ0l.Q ()6!Q<>
OtJ('t)b 15%-'bo 80<1)0.
(J'BM(Y) 'b()b<1)n :3.:ib(Jbn Mrr.8 803oc:;rricn, f\306 (JO{Qo ob, Mrri8 FVIFi,s
00t'il301Q 006rri01 (1 + i ) 8 , b0bom CQ0 30.3('t)3('t)m i Clo8C!?oo600t'il01Q:
(1 + i)8 = 3
(1 + i) = 3118 = 30.125 = 1.1472
i = 0.1472
(i-b0106 08rribb6001, f\306 01030CQ06 (J6Q?0 003'l:>ot'iltQrrim 0 .:i5-
rrifiio30 8b.:ifiio 1/8 06 0.125 b.:ifiiobb081QO· ,,3"-nb 0.125-o b.:it'ilobbCln
f\306 3otJ060001 [y'] O:J 0 3tJ03b 3, 303'ot'il01 [yx],
Clo03tJ<>3b 0, 125 CQo 303'0M01 [=]
(06 :J::it'ilorriO?::i6oli ()(36Mon Gocat'Jo. (!?0 03-
::j:ot'ilCQ::JG n8nb 0 00 000 1 Mo CQMM CQob3'nt'iltQ06<> IQC::Jb t'il0080 m06b0b, MM8

51
 8n0c;o0Mli .3MMGD66oooli tl?0M0Gb3oli
0060J3001n01. M0 C!:;iMM e!:;i0bi:J:nM!:!:;iD00 1000$ 063olionG00li,
MM8 0 0n'b0MCQMli 1900$-8tl?o 10 .3MMGD6on06n tl?0MnGb3nli 006"J3001nli0li? (ii08tl?o60-
tl?0G R306013oli n63obonGnnli CQ0
08 Li006 30 t.i 0 n8 n{Y) lino(J0 8 n0Clo (06 .3M{Y) 80 600 -
ooli e!:;i0MOGb3nli .3oMOMCQOOnl.i M0Me!:;i06M00 (n) 06
dn(iin010CQn 0 08MiJ06oon01. c;n(iioo(J-
(3.5) 0 08MiJo6oon01 830 6 3nc;oom
FVn = Po(FVIFJ(l%.n) $1,900 = $LOOO(FVIF10%,n)
FVIF 1o%.n = $1,900/$1,000 = 1.9
360bM01 3.3 10%-oli Cloli0008nli li3o&Cln 8M3doo6001
JMO'lJoGoo66li (FVIF), (ii0G 8306!.i 8oo(ii 8306
0c;8M3080601, MM8 1. 949 0Mnli 1. 9-0106 e!:;i0 oli MnGb3n Clooli0008000 .3DMOMCQO 7-nli
85J(iin3li. M0CQ 0 06 1.949 tl?ntl?n0 1.9-'bo 30GJ36n01, MM8 lin6()0Gn0Cln .3MMG06&oooli
CQ0M0(3b3oli .3oMOMCQOOOl.i M0Mtl?o60100 (JG(Q0 Oi]Mli 7
!:Q0 'b(Jli6oooli013nli, 0 0CQ035o(ii{Y)01 FV!Fw''·" MM 0MMG (I + 0.1 O)" (!?0 08M3bli600111-
0106 tl?0J3Cln(iioon01 Clo8!:Qo860n(ii0tl?:
(! +0.10)"= 1.9 n(In l.l)=In 1.9
n=(In 1.9)/(In I.I) 6.73

MM8 08M03obli60 n, 8306!.i 8oor1 608306000 OiJM

MM 0 MMG b0Moliboli 0 08M3niJ06001 .30 0 0(ii0 8Mbo(iiboo0. R306 03oc;om 006-
MMn30 8b0(iioli (In). 0806 8M83G0 'b(Jbo0!'.Q
n. (Clo60Cl360: (In 1.9) (ii018 0 03iJM01 (In 1.1)-'bo 8306 3niJ060001 (LN)
Clo8!:Qoo60nM01:Q: Clo 0iJ303li ,, 1.9"; 303'or101 (LN) Clo8!:Q08
30.'foMm (/); Clo8!:Q08 Clo0:p3li ,, 1.1 "; 30.'fo(iim (LN) JOQ/03
30.'fo(iim(=)

06'Vo&n60. 60r18M0a:0o6li 0106000(iio 0 0!:Q0btl?oooli 06

linMoooli, C!:;iMMnli .3oMOM(!?OOClo.
06()06o6oli !J.?MMli 8 0tl?0b!:Qooo 06 .3or1oMtl?oli
3.3 l.i()M001'bo 60J0!:QOOO 06()0606oli013oli (QMMnli b0'b'bo.
010fo60f\io 9J(Jc::'0(t/O e!:;i03(Jd3001 li(JM0010 3.3 b0M8M0(Q806li 01j306li 1000$ 3
0 0lt?0blt?oonl> 06 8Mtl?o01 lQ<> 3(JCl 3001, <i1M8 013 30 6 0006tl?ooo1
a0a01u0 3c::>oool> l>or>io", 0600610Cl'bo 8 .3MM(306ooli (!?0MOGb3001. M0 M0M(Q06Mooli 0106b0
00Pi801tl01onc::>o 0od600001 li080 Clo8i:><:JO? li(J<'10010 3.4 .30li()bli 0 'b0) - 08oli013oli 8306
308060001 (JJ30 06Lio<'1()806&0oli.
0 061.>0 FVA 11 0610!.i 06(Jo@Jo6oli
Pioob3olt/06. R- (06 0 0i:><0li0b01:Qo) tl?0 n -06()0@:>06oli
.>5CJo<'!Jo6nG (:)08mb3030Clo, FV A 11 -oli013oli od6000
o"lt?"blt?o<'>u 06 'BCJc::'"Q?
Clo8"'G"3c::'O<'>G ·'(!?flOr:;-o FVAn = R(I + i)"' 1 + R(l + i)"'2 + ... + R(l + i) 1 + R(l + i)0
"JOG W"30c::'o :Jor>io01Q?nl> = R[FVIFi.n-i + FVIFi.n-2 + ... + FVIFi.i + FVIFi.oJ
(IJc::>ol>) 6"'c::>"'l>, IJ060l>IJ0Pio
06CJ0606ol> !:QM"'l>, FVAn 8061(l)o30a: 0Moli (R)
8"'3Dc::'O :Jor>io"1CQOU JMO'lJOGoo6@:>oli P10Ma:o6Mo0'bo i%-001
Q?'>b»IJ8ol>Clo. .3or1001tl?oooli013oli O-(Q06 n-1-8!'.Qo"· li000!!?6oor1{Y)(Q, oli b0M8M30(Q-
806M01 (J<tJMf'l

li0CQ0(3 FVJFA;,,, - ji1t11re value interest factor of an annuity at i%j(Jr n period1·, 0c;60Cl603li ,,06()-
06060!.i JMO'lJ0(3006@:>li io/o-nli 11 .30<'1nMCQOli0li''.

52
 ooc::; 30J80 ot'lmboc::; 'Bli106fl0o'bo63001 080(!(0 l5oJ0()fl"Jb m030Go li<iotJoGo 0630G&ooo0 06 0.::.li1oCJ'bo 6
White Sox ooolioMc::;ob 8()0(QO $10 8oc::;ofl"J50(Q !!?" 5 dMM(3<J50om, 8,:,l; 8M:J(30(Q<'>
f5c::;oli Bn81!?oo o0tJO(Q0 $20 8oc::;ofl"Jfo(Q. 8fl"JJc::;D(Q, 806 ooom 12 8i:>C'1M803noolim30G:
0MC'16'i801p 01.:.3obo <(3()c::;o 5 f5oc::;0o. Bo8fl"Jli03c::;oG Mfl"J· 72/i = n
()fl"JMO Mm(Jc::;o (Q0Mo(3b3ob 0060J30010 0.:>8C'108()Cl030
<>5
3oJ8<> 08 o5 30 ti00 8 0<> 'b 3? ·
72/6 = 12
· 0 01'16180 00 00 .3t'i\[')on50ob 0 08[')-
im6ooo01 Cloodc::;oo0 ,,oolio 72"-001. ob o::ibo 0(QO::J5b, ,,onlio 72" b0(Y) 0 noc::;oli
6iC'1 8 0 o5 3::ili0oooob fl"Jli1800l!?o60 0060J3::imb 05 00C'1M8.:. 0ooobm3ob b01foMC'1
M0f'11Q05fl"JooG <>6 0 060J3::i01nG M0C'1!!?05C'100b. 80 0 (Y)08 .3.:>b(Jbo 0<") 0flob
Li0.3fl"J36oc::;0Q? 72 oi:>OtJC'1<(30 Mi:>MQ?::J6C'16i:>'bn n- UbC'1MO. 5 ooc::;ol501,QOO (ii:>C'1M-
'b::i .:.5 Li061 0 ::i6c::;oli 006.::.J3001'bo i-'bo. 30Joli CJ::i801b3::i30- 8001,Q:JOv 14.87
005.::.J3omob .3oMC'1onooo [(l + 0.1487) = 2]; flobo 72
5
Clo, 063nb&ooooli 5 00C'11i1803::iooli0Li,
0 06.:>J3::i010 i .>P'iob. 03ot'lfln3li 14.4 .3fi'iC'1(3:J5&G. 0bo3n, 6 .3PiC'10D6&0060
72/n i 0.:>60J3:Jmom (Qi:>O&O(Q[jO(Jc::;o 8C'1ombM3li 11.9
1
.:.5 0 0MM803nonbm3ob [(l + 0.06) '-" = 2]; ,,onbn

7215 = 14.4% 72" 330Pil503b 12 m(J8(3,), ,,15nbo 72"-ob

308C'1tJ<J6no0 bo&(QOC'10ob
3oJob MC'18 G?0oo<>6G?::ioo60 }:JO<Q3om 00C'1M80 0ooobm3oli.

bo 'On ':']fi306iJ6G
0 1 2 3
rrr0c:>;nG 6'\Pil?OonG
cn06808o;;:03MP10,:-;G i:.Jf'13QC::-
$1,000 $1,000 $1,000
3 Oe:;oG
00Ga.,3c:>;M00Cln 1OOOS-nb

iJ?MMU.

0 1 2 3

$1,000 $1,000

J
$1,000
CQMnnb b,J 'bo 1,080
.o6'Zlo®o0oG

d0BmlJ-'.l3vr::;n
R = $ l.000: i = 8°!.i: W"
11 3 5o(":GJ.

53
 n

(PVIFA;,.) =I, o + ir' =c<1 +if -11/i

1$-ol> (R33()c;:>:Jol'1030) t=I
u.'.lMoOoc::>OLi o.J6.JJ3omo
1>6<Jo838ol> 8<'>8031>c;:>o
c:nl'13o()c;:>:JOOU .):Jp;Of'IO::O 1% 3% 5% 8% 10% 15%
I 1.000 l.000 1.000 1.000 1.000 1.000
i%-001 n 2 2.010 2.030 2.050 2.080 2.100 2.150
d:JMO<'>l:l?:JOol>013nl> 3 3.030 3.091 3.153 3.246 3.310 3.473
(FV/FA,.,,). 4 4.060 4.184 4.310 4.506 4.641 4.993
5 5.101 5.309 5.526 5.867 6.105 6.742
6 6.152 6.468 6.802 7.336 7.716 8.754
7 7.214 7.662 8.142 8.923 9.487 11.067
8 8.286 8.892 9.549 10.637 I 1.436 13.727
9 9.369 10.159 11.027 12.488 13.579 16.786
JO 10.462 11.464 12.578 14.487 15.937 20.304

o!!!?OL>of'l!!!?f'l

0 1 2 3

$1,000 $1,000 $1,000

1!10UJ<'>68nl'13o()c;:>O 1 63c;:>n
$ 926 _ _ _ _ _ ___,
>6<Jn8n8nl>
(ll33()c;:>:Jol'in3n)
1>bc;:>1>61!1:Jc::'O
(C!/nl>J"'68n1'1noCJc;:>n)
c:n1"3o<Jc;:>:JOOU
0 08<'>060 01'10Clnonl> C!!M"'ol>
b0 'lin [ J:JMO<'>l!l<Jc::'O
Cl38<'>l>1>31>c;:>n = R = $1,000;
i= 8%; !.!1" n = 3 onc;:>l>].

3.5 obt'locc.>Clo R.:i6li FVlFA-oli .:iot'1030.:i0()MOU R.:i8Mfoen3.:icc.>o. ()<BMM UM(JCC!O R.:i8M6.:ien3.:>cc.>O

R.:i6li 15o 0 6oli oMcc.>Mli .:it'llioo()cc.> obt'locc.>o III !:!?.:ifot'lenoo.
3.4 li()t'l.:ienoo .:i8Mo.:i6oli .:i8Mli.:ibli6occ.>.:>U? obt'locc.>o 3.5 0 .:i8M8o6oooen 3ocwoen
FVA 3 = $1,000(FVIFA 8% 3)
= $1,000(3.246) = $3,246
oli .3.:ili(JbO OU?o60(JM0.) o8oli, M.:>(3 .:ili.:ib(Jcc.'0'> 3.4 li(JM.:>enoo (0060036.:i: '8P1M8(Jcc.>OOOU 6.:i(33cc.'"!:!?
obt'locc.>oooli 0.:i8P1806oo.:ili 8038.:i3.:it'len !:!?.:i81'\ 03.:icc.>oooli CloGU?M8oo.:i8!:!?0· en() R3o6 0.:i8M30-
806ooen 3.8 0 .:>60Mcc.>OC.:ib, .3.:ili()bo 40 (3060oen 8000 . .:i8o0M8, en() 8MoenbM300.:i
0.:i6li.:>J(JenMOo()CC!O lio'b(Jli0:J, (3bMocc.>oli 6.:i(33cc.''>!:!? ()61:!?.:i 0.:i8M30806Men ooli.:io.:i8olio <BMM-
8()cc.' ooo).
!:!?'>3(JCM()6U?oen 3.3 li(Jt'l.:ienli . .:ibcc.>.:i 8MU?oen !:!?"3(J03.:ien, MM8 R3o6 1000$-li oocc.>oo.:i!:!?Clo
3 Occ.>oli 0.:i68.:i3cc.>MC.)OO 0086.:ib3occ.>o .:i6c..:it'looo!:!?.:i6, MM8:Jcc.>U.:>(3 ot'looboo.:i M01(Jcc.'0 Occ.>O(JMO
8%. t'l.:i en.:i6b.:ili 0.:i6.:ien.:i3lioo!:!?oen end306 .301'\U?.:i.301'\ .:ibcc.>.:i (U?MMoli .3ot'loMU?o 0) !:!?0.3M'bo0'bo,
MP18 OMCC!P1 1000$-oli 8Mbli6oli Cloa!:!?Do end306 !:!?"o:Jb(JM.:>01 .:i6c..:it'looo? 3.5 U(JM.:>01'bo
6.:iR306000.:i .:i8 .:i8M(3.:>6oli .:i8Mbli6oli 01'\docc.>o 0 'b.:i.
MM 0P1M(3 3.5 li()t'l.:ien'bo R.:i6li, .:i6()o0o0oli .:ibcc.>.:i6!:!?Dcc.'o
O:JU?OU .:ibcc.>.:i6!:!?DCC!O liot'looooli 5(:.:>8oli c..:i6li.:i
()'8MP1 80000, R3o6 Clo 0 3odcc.>o.:i O:J3"!:!?oo6Men R3o()cc.>Do"1030 .:i6(Jo0o@>oli .:ibcc.>.:i6U?occ.>o
do"1oen.:>U?O <BMM8(Jcc.'" n .3:JMOMU?:JOOb013oli (PV A.) oo8U?oo6.:io"1.:i!:!?
PVA" = R[l/(l + i)1] + R[I/(l + i) 2] + ... + R[I/(l + i)"]
= R[PVIF;, 1 + PVIF;,2 + ... + PVIF;,0 ]

54
 n

(PVIFA;, 0 ) = Llf(l + i)' = (1- [l/(I + if])/i

$1-oG ll3Q(Jc:!;QO<'io30 t=l
o.:>6.:>J300Jo
o6(Jn8a8ol> obc:!;o6owc:.>n
.>01'\0f'l!QO (n) 1% 3% 5% 8% 10% 15%

J"':J'1JOGOQ68o 31'\m l 0.990 0.971 0.'.:52 0.926 0.909 0.870

:Jal'io<'>Q?'b3 i%-om n 2 l.970 l.913 U\59 1.783 l.736 1.626
:J31'\o"'ll?Dool>m30G 3 2.941 2.829 2.723 2.487 2.283
(PV!FA,) 4 3.902 3.717 3.546 3.312 3.170 2.855
5 4.853 4.580 4.329 3.993 3.791 3.352
6 5.795 5.417 5.076 4.623 4.355 3.784
7 6.728 6.230 5.786 5.206 4.868 4.160
8 7.652 7.020 6.463 5.747 5.335 4.487
9 8.566 7.786 7.108 6.247 5.759 4.772
10 9.471 8.530 7.722 6.710 6.145 5.019

tj(JMC>CQc:;>Do.:> 80.:idGoom, fi3060 PVA 11 O:J8Ml.i.:>3-

(R) JM:J<(30(30:J60oli lio(QOCQ:J%0 i%-om, 1-
(QC>6 n-8\1?0 (QMMoli .3oMnM(QOOom". 8.:imo8.:i0oJ(JMO oli

PVA 0 +i)']=R[(l-[1/(1 +i)"])/i]

!QC> 8 .:i8Moli.:ibMl..i 8.:i('T)00 3.:i\J?, MM 0MMG

PVAn = R(PVIFAi,n)
l.i.:>(QC>(3 PVIFAi,n 6006.:i3l.i .:>6()000001..i JMoino-
(300601..i i%-om n .30MnMCQolim3ol.i . .:i8 oo 0 6ol.i CQ.:>6.:>Mmoo IV 000(3.:>31..i PVIFA-nl..i
i (QC> n-ol.i l.ib3.:iQ?.:>lib3.:i 3.6 Jn ti.:i(';)8M.:>!Q 0 o6Li 801..i
3.:i('T)o.:i60li.
fi306 0.:i8M3nt106Mm 3.6 1000$-ol.i .:>6(Jn0o&nli c:;>nMo-
8Mli.:idao6.:i(Q l.i.:i8o 3.5 l.i(J('T).:imoo 6.:ifi306000 8%-ol.i
8oboCQ3om. 3.6 ('T)M8 PVIFAsu 2.577-[) (tj(JMC>(Qc:;>OOC>
80.:idGnom, oli lio(QOQ?:J .:>Mol.i Li.:i8o M0(3b3ol.i m.:i6b.:i 8%-o.:i6 Li30&00 3.4-oo,
Q?C>b8.:iMooomC>(3 8Mndo66oo.:i PV!F). 3. 11 8C>8Mt10606001
Fi306 3oc::ioom
PVA 3 = $1,000(PVIFA 8"u)
=$1,000(2.577) = $2,577

()(36MOO .:.6 0.:.60J3omo . .:>6(Jn0o0nli c:;>OM:J-

doMom.:>a;>o
0.:i30 0Mm .3MM(3:J60om a;>oliJM60oli 0 .:i6.:iJ3omo .:i6(Jo-
0o0oo, 01() fi306013ol.i (1) .:>6()000001..i (2)
0 .:ia;>.:ibCl?ooo .:i6 !QC> (3) .30('T)oMCQ060l.i M.:>MCQ06M6.:i. a;>.:>3()03.:im, MM8 7
008C1?08 md306 CQC>8ffOMCQOO.:>m 9500$, MM8 0.:i.:i 0 %.:i36Mm md3060
JM(Jn%Clo. oli m.:i6b.:i MM8 Clo.:>8MM3Mm, md306 (J6a;>.:> o.:>6.:im.:i3l.iMm 1000$
oo8a:>oon 8 o.:i6Jol.i .:i6 0.:iMoo%o !QC> 8.:il.i
.:id3li (QC>Mo(3b3ol.i .3('T)M(3060o, MC> .3MM(3:J6-
0.:i6.:>J30mo ()6CQC> oo8M 0m.:>3.:>%Mm o.:>6J8C> md3060 (QC>6.:>%M 0:JOOl..i CQC>8:Jo83ol.i.:im3ol.i?
('T)M8 0 060J30010 (i), fi3060 08M(306ol.i
.30MMOoool.i013oli, c.08M3ot106Mm 3.9 00()000001..i oo8a:>oon
FVA 8 = R (FVIF Ai.s)
$9,500 = $1,000(FVIFAi.s)
FVIFA;.8 $9,500/$1,000 9.5
3.5 8 .3oMoMa;>oli 80JM03ob ()0CQ0J3:Jm0do fi306 36.:ib.:i3m, 06()000801..i JM:J<(30(30:J6-
0nli (FVIF A), fi3o6 8o 0M

55
 2.

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11306 8013doo6ocn 5%-ob 860036oe;;01oob b3o@>on. M.:ium06 9,549 .:>Mob 01CQ603 80@>0, 30CQMO 9,5,
R306 30bJ36ocn, M018 .3M01(306@>()e;;o 006"J3ocno 006boe;;()e;; bo@>().:>(30000 dnMocn.:>lQ.'.>CQ ()6lQ.:>
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M0 cn.:.6bob 006cn03boo0 ()5!Q0 801buwb tJ0130e::'0 oe;;ob 001e;;Mb 0086.:ib3oe;; 0600MnCl'bo, M018
8 oe;;ob oo8lQ08 lQ0()MM3lQOb 10000$, CTl() l.Qo.301'bo@>b OM0(3boo0 5%-0060 MOl(Je::'O oe;;n(JMO
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8013doo601cn FVIFA5%,8 Clob.:.008obo QOM[JO(Je::>000 008C!'.?00600M.:>CQ:
FYAR = R(FYIFA5%,8)
$10,000 = R(9.549)
R $10,000/9.549 = $1,047.23
CJ003ode;;o0 CQ.'.>30bJ360cn, 8 oe;;ob 006803e;;M00d0 l:Jr'13Je::'0 oe;;nb OMe;;01b ·aa860b3oe;;
0600Moo'bo 1,047.23$ 006cn03booocn Moi(Je;;o 5%-0060 b.:iMoooe;;ob 0060J3001ob !Q.:>Mn(3b3ob
008M1:Jo6ooocn 8 OC'le;;01b R306 8030Qo001 Clo86.:.b3oe;; 0600Moo'bo 10000$ cn06b0b.
0a0i.5ai:8J';'Jo0o Perpetuity
- ()3,ll?"' 06';')oi:8J::ii:8Jo, .3o(i).3lJ8()o8o. ()30!.QM 06()0@>060 00t08M0CQ 006b R3o()e::>00Mo3 06(Jo@Jo@>b, M018e;;ob 00b03e;;ooo
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boe;;03m 8(JCQ8030 01oe;;o00Goooob !QC> .3Mo3oe;;o00Moo(Je;;n .:.dGoooob Q?OMOo()e;;oo,)b.
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0080M@Jo300000. 3.10 006@>01e;;oo0Clo n-ob (Jb.:ib<Yl(Je;;Monb 860Cl36oe;;01oom (00 ) CloG3e::>om, R306
30Q?oom:
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lfo6.-,lio01'10 <>6(Jo8n8o. R3o()e::>Oo<Yio30 06'ZJ06o@>ob 006 006bb303 0oom, M018e;;om0G 00b03e;;ooo
06 Clo801b03e;;ooo 60<Yi8010Cl3000 dOM001lQOb 001e;;01b, 6060bo0Mo 06()0@>0@:>0
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3.6 U(JM0CTlO 0CQ0M:JOb CQ0 0060bb303oob 1000$-ob R3o()e::>OOM030 06(Jo@Jo8ob 801803.:ie;;o
Q?OM:JO(Je::>:JOOb 008010600<Yi0Cloo0b b.:i8o oe;;ob 006803e;;0100Clo oe;;o(JMO 8%-om (FY A3) 1000$-ob
6060bo0<Yio 06(Jo@Jo@:>oli 801803.:ie;;o c:io<Yioo()e;;oooli 008010600r10Cloo0b (FYAD 3). 800dGoom
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3 !Q0 4 .3ol'i'ioMlQ:JOOb lQ0U00iJObOo.

56
 ?
.:i6(Jo@;o@;o .__ _ _ _
} ___
f f i
I I 1,080
1,166

($1,000)(FVIFA83 3 ) = ($1,000)(3.246) = $3,246

o6(JnooonG
8%-nm 3 <Jo8G?Jo (FY A,)

1 2 3 4
I I I I
$1,000 $1,000 $1,000

l
I $1,080

1,166
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(!!0 tin60Gl'i0fin o6(JnooonG 1,260

($1,000)(FV/FA83 ,3 )(1.08) = ($3,246)(1.08) = $3,506

0 08n106 0 ofinClaonG (QM<'lnG
bo'bn
1000$; 5n60Gfo/On ,,6':'JnooonG
i= 8%; !:!?"
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i%-001 11 .30MOM(l?Ob013ob (FV ADn) ()0()@>M;.::>\Qc'.J00

FV ADn = R(FVlF A;.n)( I + i)

'c,

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5o50b50Mo 06()00o@Job 0 06b0'bc:.;3ti10 i JMM(jc'.JD@Jdo 11

dJMOMCQ:JOOb013ob (PV AD,,) (JJJ01.'.Jli0CQ 0Mnb 3.7 b(JM0010 (Jfl306oob
0 08M06 0 0f10CJ000b 8%-0060 IOOOS 06(Jn<IJ>o<IJ>ob b080 CJo8CQJo
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PVADn = R(PVIFAi.n-1) + R
R(PVIF Ai,n-1 + l)

57
 0 1 2 3 4
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$1,000 $1,000 $1,000

$. 926 ___J
857 • I
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$2,577 = ($l,000)(PVIFA83 ) = ($1,000)(2.577)
.:i6vn&o&oG
8%-nm 3 (JQ8C!?Oo (PVA3)

on6.:iG6.:iti'in 0 2 3 4
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926

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>6':'.Jn8n8nl> $2,783 = ($1,000)(PVIFA 83 ,2 + 1)

on6.:iG6.:iti'in .:i6vn&o&nG
!!/> ()060()36.:i 8%-om 3 0081!/Do (FVAD,)
lfo6>l>b>Mn >6':'.Jn8n8nl>
ll/Mronl> b>'lin
R = 1000$; (l.08)($1,000)(PV/FA83 ,3 ) = $2,783 = ($l,000)(PVIFA83 ,2 + 1)
=
i= 8% !!/" n 3 (1.08)($1,000)(2.577) =$2,783 =($1,000)(2.783)

006.:ibo01'10 .:i6()0838ob 00630-

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PVADn =(I+ i)(R)(PVIFA;.n)
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58
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Clo8mb3030Clo, CQ0303Clot'loo(Jc:;>o0 0 08M(J30c:;> CloG!J?M8oom06, li0608 md306 01'1 CQ0:J(J'8c::>Ooom
0(JGoc::>oooc::> rs 3030 oti.

mj3060 !J;1000!J?:JOOli CQc:;oli tJM30i:::.' D[Jc:;>li mj306 C>o06CQ[jOUl 2000$ 001Q0li0b01Qooob006 0 0601.::,3ob(J'tlc::'OO(Jc:;> b0.306-
lioM 063ob®o800U C>6 0 06'JoCJ'ba. 65 bc:;>ob 8oc:;0[)30b0b UlJ3:J0 0[)JO[J00Ul 1Q00 6'JM3oc:;>o:
o060J3QOlO
················-···················
6i0l'Vr:'70 36ir1G:J6<1!i:J3ou C!?.:ie:,ooti30GOl30L> (i) 21 3! 41 Sl
$222,870 $109,730 $46,552
773,0l l 344,634 146,212 54,304
l,437,810 542,048 196,694 63,544
!2 2,716,460 863,326 266,668 74,560

59
 6c::.'Oli !.l?0Li0li6i'Zlc::.'O

0 1 2 3 4 5
I I I I I I

$5,000 $5,000 $6,000 $6,000 $1,000

$ 4,760 ...,_J
4,535 .... l
5,184 • I
4,938 • I
784
$20,201
PV0 = FV1(PVIF5 %) = $5,000(0.952) = $ 4,760
PV0 = FV2 (PVIF5%} = $5,000(0.907) = 4,535
Oc::,>80M60&030 J.
Clor'1o()c::.'O '<J()c::.'0(!10 PV0 = FV3 (PVIF5%, 3 ) = $6,000(0.864) = 5,184
60JO(!?OOOU obc::,>06cr?oc::.>n
PV0 = FV4 (PVIF5%.4) = $6,000(0.823) = 4,938
(!?OUJM6&nr'1oo()c::,>O
PV0 = FV5(PVIF5%, 5 ) = $1,000(0.784) = 784
0 o8Mo6 0or'1nooool> (!?MMnl>
bo 'bo [FV, FV, = $5,000; OOMO(Jc:.'O 'IJ'(Jc:.10!!/0 60J0!!/0ool> 0bc:,i06!!/0C::O $20,201
FV3 = FV4 = $6,000; FV, = c::ofi'ioo'()c:,ioo0 5%-om 5 ()c:,iol> 008!!/08
$1,000; i= 5%; (!10 II 5
6oc::.>i>l

0 1 2 3 4 5

$5,000 $5,000 $6,000 $6,000 $1,000

????? _____...__ _ _ _.....___ _ ___,__ _ _ _.....___ _ __,

$6,000 $6,000 $6,000 $6,000

$21,276 _ __.__ _ __..__ _ ____,__ _ ___.

$1,000 $1,000
$1,859 _ _.____ __,

$1,000
$784 - - - - - - - - - - - - - - - - - - - - - '

PV0 = $6,000(PVIFA 5%.4) = $6,000(3.546) = $21,276

oc::.>&01'160&030 2.
oar'1o()c::.'o '<J()c::.'Ocr?n
60Jocr?oonl> obc::.'o6(!10c::.'0
(cr?ol>J"'6&o1'ioo()c::.'o)
0 080106 0 o1'ioooool> (!?MMoi>
bo'bn [FV, = FV, = $5,000;
FV3 FV4 = $6,000; FV,
$].000; i 5%; (!10 II=
6oc::.'i>l
PV0 = $1,000(PVIFA 5%, 2 ) = $1,000(1.859) = (1,859)
PV0 = $1,000(PV/F5%, 5 ) = $1,000(0.784) = 784
60J0!!/oool> $20,201
= 5%-om 5 ()c:,iol> 008!!/08·
5
00600360: 'b[]8Mm 00!.>(Jbn 0t'i'iol> 3.8 U(JM0mol> 8l>803l>o. OJ(J8(30 08
808MtJ0600001 !!/08fi'i830c:,ioool> 00(3!!/<'1808 'bMQ'.l(;OM 8M0b!!/06Ml>
8 0!!/0G!!/M80 00!.>(JbooClo 08Mbl>6ol> l>b30!!/0l>b30 8omM!!/ol> 808MtJ06oool> Clo801b3030Clo ofi'imo !!/0
08030 '(J(Jc:.10!!/o 60J0!!/ol> 8080fi'i01.

60

b0li1e,00C':'.'0G e,06.>J3001n
oli1mo OC':'.'OU dJMOMCQOO,
MMBJC':'.'0(3 .>M 'b(Jbii)CQ360
!i1m'ZJC':'.'n .3M"'Go6il)o6nb
CQOMn(3b3ol> Gnbonli1om. O'l'ZJ
.3!i101eo6il)o60 CQMMo 8 b000
bJC':'.'00.>(QdO M.>8CQ36-
j>GQM8J, J'/JOMJ>no6o
.31i1"'(3Q6ii)(JC':'.'n e,06.>J3omn
0c;8mfi6CQOO" (J'(JMM
8oc;.>C':'.'n, 3n(QMQ
501806.>C':'.'(lMn .3MM-
(3J50CJC':'.'0 0 0G.>J 3o010.
8M8.:i3.:ic:::;o .:i6 0DCQoD6oc:::;o <>d<>8LQO fi306 803ofi603LQ001, (i)(")8 0Mf"l(3060o obCQoo<>
tic:::;o(JM<>CQ. <>00010 80CQ3M8,) ,:,(i)oooo01.)CQ <><>CQ3oc:::;ooo <B(JC::::OO CQMf"lOO 8oboCQ3001
(33c:::;oc:::;oooo 0 ,:, 0 00<>0. ,:,bc:::;,:, LQ"CRo" CQMf"l 0 ,:,63oboc:::;M01 ()(i)0100MJ<>3Clotilo
8f"l8<>3<>c:::; (?OMOO(JC::::OO<>O I:!?" 3<>6<>J3001000 df"lMOO 0Mf"l(3060o6oo CQ<>M0(3b300
ob3<>LQ<>ob3<> 30Mor>1CQ0001300. CQ<>O<>b::Joooo01300 1:Q<>3()03<>01, Mf"l8 0MM(3060ooo 0 <>CQMbLQoo<>
6.:;b 03 .,<") fioc:::;ofi<>LQ'do 0M01boc::::· ,:,8 Clo801b 303 .,CJo, 01() 01d3o6 CQ<><>o<>6CQ0601 100$ Clo86<>b3oc:::;
,:,6o<>Mod'bo 5Mffo50c:::;';_'.J("10 ,:,6 fic:::;o(JMO 8%-0,:,60 3<>6<>J3001001,
6 01301.i Clo8CQOo od6oo<>:
FV05 = $100(1 + [0.08/2]) = $104
lib 3., 0008300001, 6<>bo3<>Mo fic:::;oli Clo8CQOo 01d306 0od600<>01 4% LQ" <>M<> 8%. CQ00M'bo0oli
8M8<>3<>c:::;o tic:::;oo Clo8CQOo od6oo<>
FV 1 = $100(1 + [0.08/2]) 2 = $108.16
oli 01v6b,:, 108$, 01() 0MM(3060o 8"1:Q"Obl:Q000 OM01boc:::; tioc:::;ofi<i(!?dO. 306lib-
30300<> 0. 16$ 08001, MM8 0MM(3060ooo 8oMMO od3li m30Clo OM0(3boo<>
CQ080000001 4$-li, MM8oc:::;o(3 (Q00M0(3boo.:i 00M3oc:::;o od3lio 01301.i Of"lC::::Mli. M0(3 800'.SGOM
(,0CQ00bCQOO<> 0MM(3060ooo fic:::;oo 0 06803c:::;Mo000, 8001 8000 od6000
8M(308()c:::;o fic:::;oli
8M8030c:::;o v8Mbli6oli doM0010CQO <BMM8(Jc:::;<> n CQ0000M(JC::::0001300,
MM(.30 0MM(3o60o o<>CQMbCQoo.:i m-:;>GoM .)MOO:
FV0 = PV0 (1 + (i/m]tm
,:,bc:::;.:i 1!?<> 3(JCJ 3.,01, Mf"l8 3MMGo60o o<>l:QMbCQo<'><> J3<>M0<>C::::(JM<>CQ l:Q<> 01d 3o6 0li(JM01 oGMCQ001
100$-oo 8M8030c:::;o Clo8CQ0oi li<>CQ<>G CQ<>CQo06oc:::;o Eic:::;o()Mo 0<>60J3omo <>Moo
8%. 8M803<>c:::;o od6000
FV 1 = $100(1 + [0.08/4])<4X1l
= $100(1 + 0.02)4 = $108.24
rYiM8oc:::;oG, f\'i.:i 01d80 (J6CQ<>, 0Moli 80c:;0c:::;o, 30CQMO 06 tic:::;o(J.rYio M01(Jc:::;o 0f\'i(")-
Go60oli CQMf"lli.
8M8030c:::;o 0,:,80 oc:::;oli OMC::::Mli J3<>M0<>c:::;(JMO M01(JC::::O 0MM(306l8.Jo01 od6000
FV 3 = $100(1 + [0.08/4])( 4l< 3l
= $100(1+0.02) 12 = $126.82
60b 03 0rYiEic:::;o060 rYi01(Jc:::;o 0Mf"l(3o60o<'>oli CQ<>Mo(3b3001 8M8030c:::;
CloCQ<>rYioooli.:ili
FV3 = $100(1 + [0.08/2))< 2l<3l
= $100(1+0.04) 6 = $126.53
l:JM30c::::fic:::;o(JrYio 6101(Jc:::;o 0MM(306<8.ioooli CQ<>Mo(3b3oli<>li
FV3 = $100(1 + [0.08/1])(1)( 3)
= $100(1+0.08)3 = $125.97
,:,8 03 .:irYi.:iCQ, rYi0 8 bC!oM<>CQ c,<>l:Q<>obCQo<'><> 0rYiMGo60ooo tJM 30 c:::; tioc:::;o, 8001 8o0o 0c:;8Mfi6CQoo0
8M8030c:::;o e,;orYioo(Jc:::;oo.:i. MMCQ000(3 m ()<>bc:::;M3CQ000 (J000M(JC::::M000 3.17 o<>60MC::::00000, f\306
3().:ibc:::;M 3LQ00001 0rYiMGo60oooli 8(JCQ803 CQ<>Mo(3b 3.:ili. d3o8M01 f\ 30 6 (J<BMr<1 CQ<>fl3(i)oc:::;ooom
8(JCQ803 l:Q<>Mo(3b30li CQ<> CQOliJr<16@iorYioo0li.
06 MM(.3<> o.:iM 0 ooc:::;oo 0P1MGo60o fioc:::;o50U?Clo
0<'101'00 8o@>:;>GOM, 0bc:::;061Qoc:::;o e,;o(i)oo()c:::;oooli c,08M0600M0Cloooli <BMM8(Jc:::;<>
(J6CQ<> o"CQ"ooo6:;>GMli 080 30 b.:i'b 0ooo 0 0Gti3Mo 3, 61M8c:::;oo'b 00 bCQoo.:i
8 08M06a0610CJ 000. 8M80 30c:::;o 'B'(JC::::<>CQo 6<>J<>CQoo (1+i)"-'bo o<>tJM<anli rYiM 0 MMG fl 30 6
080G 30Jo010001 5c:::;o(J6lo 061f"l(3050oooo CQ<>P1oob30G (QMMo, f\306 0063G0'bc:;3(i)0 3m
C'.;OMOO(JC::::000U Clo8CQoo500MC>CQ:
61
 G.:i!.!;!.:>G, MM 0MMG .:>!.!;!MO, FV 0 .:icY\oiJ 6.:iJ.:>!.!;!o n m
.:ie:6006.:i3G cY\.:i8!.!?o6:5(;ocY1 !.!?"OMoGboo.:i .3r'iMGo68o, i .:ir'ioiJ !.!?oGJM6-
8or'ioooiJ 0.:i6.:iJ30010. 3. 18-oiJ 0 .:i8MtJ0600001, R3o6
0 .:i8M 030 .:i6 0 .:icY\oo.:i 80G.:i8 0 100$-oG 8%
!.!;!OiJJM68oMoooiJ 0.:i6.:iJ3001001

PV 0 = $100/(l + [0.08/4])<4l< 3J
= $100/(1 + 0.02) 12 = $78.85

01() {!;!OiJJM68oiJ 0.:i6.:>J30010 {!;!MMoGboo.:i R3o6 o3od6oo.:i

PV 0 = $100/(1 + 0.08) 3
= $79.38
.:i8 03.:ir'i.:i!.!?, r'i.:iG b!.!?oo.:i {!;!OiJJM68or'ioooiJ 0.:i6.:iJ30010G
!.!;!.:>M0Gb3.:i, 8001 8000.:i oiJ 8M!.!;!OG
15o6.:i.:ie:8!.!?0oMO.:>Oo 00801b303.:ioo .

.3cY1.:id8oJ.:>Oo 'bM()j(;OM b!.!;!oo.:i .3MMG060000G 8()!.!;!803.:i{!;! !.!;!.:>M0Gb3.:i • .:i8o8M8,

Mf'l()MM ba;ioo.:i oiJ. 0.:i3obiJ06M01, MM8 0.:i8M.:i60.:ir'iooooolJ
IJ.:i0M01M n 008!.!?0o, 3.17 .:io3IJ 008!.!?0oo IJ.:ibo:
FV11 = PV0 (1 + [i /mJr"
MM!.!;!OG"G m, .3r'iMG068ooolJ !.!;!.:>"10Gb30G Goboor'io, (JG.:iiJ-
( 00 ) , R3o6 3oe:oo01 8()!.!;!803 .3MMGo60ooolJ a;i.:iM0Gb3.:iG, .3oMMO.:> (l + [ilm])"'"
e;" -!.;, G.:i!.!;!.:>G e .:ir'iolJ 2,71828. oo!.!?Oo"!.!?' PV0 -oiJ iJ.:ibtJoGo !.!;!0.3M'bo-
8oiJ n Clo8!.!?oo, MMG.:> .3MMG060ooo !.!?"OMOGboo.:i 8()!.!;!803.:>!.!;! i
0.:i6.:iJ300100, .:icY\oiJ:
FV11 = PVo(e Y"
R3o61J 1506.:i 100$ !.!?0.3M'bo8oiJ
3 Clo8!.!?0o ctMMG068oooiJ 8()!.!;!8030 !.!;!.:>M0Gb30G Clo801b303.:ioo 8% 0.:i6.:iJ3001001 00600.:i:

FV3 = $100(e )(0 o&J(JJ

= $100(2.71828)< 0 ·24) = $127.12
olJ 003.:i!.!;!.:>MM01 ctMMG068oooiJ !.!;!.:>M0Gb3001:
FV3 = $100(1 + 0.08)3 = $125.97
.3MMG068oooiJ 8()!.!;!8030 !.!;!.:>M0Gb3001 803oe:oo01
n .3or'ioM{!;!OOoiJ
3.:i6.:iJ30010G .3or'iMooooo .
.:i"8.:i30 0.:i8MtJ0600001 !.!?"GJ36.:i8!.!?o, r'iM8 .3r'iMGo60oooiJ
8()!.!?8030 !.!;!.:>M0Gb30G Clo801b303.:ioo n 008!.!?oo 6.:iJ.:>!.!;!oG
8ooe:ooG 0081!?00 IJ.:ibolJ:
PV 0 = FV11 /(eY"
.:i8 03.:icY1.:i!.!;!, 1000$-oiJ 803oe:oo01 10 008!.!?0o 20
.3r'iMG068o.:i6o !.!;!oGJM66or'iooolJ 0.:i6.:iJ30010G 8()!.!;!8030 !.!;!.:>M0Gb3001, od6oo.:i:
PV0 = $l,OOO/(e)<020 )0o)
= $1,000/(2. 71828)2 = $135.34
R30 6 3bo!.!?.:i 301, r'iM8 0.:i8M.:i6 0.:ir'ioo 0o.:i, a0o8 .:i 3G
.3MMG060000G 8()!.!;!803 !.!;!.:>MoGb3.:iG, .:ir'iolJ 0.:i8M.:i60.:ir10CloooiJ
ooiJ.:>8tJ30Go. 01()88.:i .3r'iMG060ooolJ 8()!.!;!8030 a;i.:ir'i0Gb3.:i 803oe:M01
o0o

62
 <'lf'l!J?:Jb.:.13 o.:>6JO 80f.!?8:JOm O!!;?O'()M b.:.:3<'lf'l():J68f'l Cia8f'lb.:.3.:.c;:>b (an annual percentage yield
(APY) md3a6b Cia86.:.b3:Jc;:> .:.6aii<'loCi'ba i.6 b.:.!:!1:Jdf'l'bo8f'l ba<'l8o<l30J1>8'b:J, <'l.:.b 60Ci6.:.3b ab?

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.'ll'i'i"'oD6@J()c:!?o 0.:i6.:iJ3nmol.i D'BDd@Jn.:.60 !:QM63.:il'i'ioonooG li@J06!:QoM@J(Jc:!?O 8;:imM!:Qo, (i),.,,8c:!?Doli00
ol.io6o (Jb(!?Ol>6 Jc:!?O;J6@Jnoli C!n8fob3;Jc:!? 063.:>MOO;JO'b;:i . .:.8 8;:imm(!?b ;:JOM!:Q;JO.'.> Oc:!?O(JMO b:JMM(3;J6@JM
o;:i8Mli1>3c:!?nG 0.:i8M.:i60 .:it;\oono.:i (APY). APY-oG 0.:>8mtin6;:ioom m.:i3o!:Q.:>6 ()6(!?.:i od6;:iG .:>(30c:!?;JO(Jc:!?o
(JO;JbMOl)t'10.:> 3.:>8M03;J(Jc:;'O !:Q.:>8'bM83()c:!?O 061.ie!Jo@Jv@JnooG 8onl'i'i dMM(3;:J6(1)nooG (!?0M0(3b30G
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O;J8Mll03c:!?o.:i6Mo.:i, bc:!?O(JMO O;J8Mb<>3c:;>o.:>6Mo.:i f.!1" D'BDde!Jo.:i6o 0060J3nmo (effective yield, annual
yield, and effective rate). APY-ol.i 3<>8m.:i6301'i'ioono.:i f.!1"'B'Zld6;:io(Jc:!?n<> U?c:.innool.i .:it;\G;:io()c:!?
(';).,,.,,lQD6mo,)'bn 1 (';),.,,8c:!?nooo 0 'B'Vc:!?o 3.:i6m<>3lif.!1no<> 06 301'i'ioo'bn 365 U?c:.io<>6 onc:!?oo0!!?00.
0803n 8nlQ3M8om J<>6mtio lQ0JM;J!:QO@JIJOOl.i b<>6lQMMOOb d;Jb1>bno "3"c:!?f.!11JO(Jc:!?DOb tl3Dc:!?"
G0<(306.:.6Gm o6G(l)'o@Jv@Jll Jc:!?O;J6@JG 0011C!Jsmoo6ml.i n'Bnd@Jo1160 l.i11t;\3;:ioc:;>oG 3.:.60J3nmnool.i onG.:.bno
6nool.i8ool'i'io l>nlibol.i 30on8oll lQl'i'imll • .:illnm 3116.:.J3nmll nomf.!?no.:i oc:!?o'ZJl'i'io .'ll'i'imon6@Jvc:!?o 3060J3nmo
(APR). m(.)8(30 <(30606ll(JMO o6G@Jn@J(J@J;:JOO i>M i>MOi>6 ()0c:!?lQ;)O(Jc:!?6o on.:.C!Jsmoo6M6 Oc:!?O(JMO
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J"'O'IJOG:J60oiloG
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b:Jcc:'Ob0(!?00 M01CJcc:'0
:Jo\"'GD60oonb (!?>Moob3nb li<>CQOdf'"J'bo@JM 8()88.:.l.i MM8 oo8M(J01030'baoo6.:. 8
M0r>CQ:J6"1C>0 3oMn0'l(!?:JOOU dMM(.306@.>0060 0060J3a01ol.i 1Q0M0(3b30 063oli@JoG00'b(J, ocaod00060 l.i0M()OO-
3obol:!?3om.
0 c.6i:>J3(]010 OJ600MIQi:>
(1 + [0.08/4))4 - 1 = (1 + 0.02) 4 l = 0.08243
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64
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20
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oJ 3o3.:ie?!o6&(JMO 'B()C?!"l!?o 6"J"l!?o 12 ooe?!ob.:i!QC!o . .:ib 001 3001.:iMoo.:iC!o, 25000$ 0.:if'1M8.:ie,l!?o-
6MIQ" 6 oe?!o01. ,,o0bo 72" -ob 0.:i8M::Jo6o6001 3oc:?oo01 72/6= 12%-b.
8oMMO 8bM03, l:J(JM<'.>IQ('.?06" e,.:i.:i8.:ib30C?!o01 08.:i'bn, MC'18 50000$ = 25000$ (FVIFx%.6).
C!ol!?Oo"I!?' (FVIFx%,6) = 50000$125000$ = 2. 6'o 0 6ob OMC?!Mb .:iMbOO(JC?!o !Q<'.>6"M01ob 1 (3bMoe?!Clo
8M 0 ooob JMO'BoGoo6&o 6 ooe?!'bo 12%-001 .:iMob 1,974 !!?" 13%-001 .:iMob 2.082.
06&0M.3C'le?!OM00001, 30('.?0001 b<'.>MQOOC?!Ob 3.:i6.:iJ3001b, M<'.>(3 Cloo01.:i3.:i 'bo6.:i JM6&M.:id&f'1Mb:
2 000 974
x % = 12% + · - 1. = 12.24%
2.082 - 1.974

(J'BMf'l bDMMo .3.:ib(Jbob013ob, 803of\60M01, MM8 Cloode?!o<'>.:i ,)b030 o"l!?"°DOMMb

(I + i)6 • 8.:iC!o6 f\306 Clo 03ode?!o" .:i8M3bb6.:i01 .3oMIQ.:i.3oM i-013ob (!!?" X% = i[lOO]) Clol!?Oo•)(Q:
(I + i) 6 = 2
(I + i) = 2116 = 20.1667 = 1.1225
i = 0.1225 or Xo/o = 12.25%
PV0 = $7,000(PVIFA 6%, 20) = $7,000(11.470) = $80,290
PV0 = $7,000(PVIFA 8%,20) = $7,000(19.818) = $68,726
PV0 = $10,000 = R(PVIFA 14%.4) = R(2.914)
"JO(Q"6 R = $10,000/2.914 = $3,432

(1) (2) (3)

m0360u am030p:,o
o0630!l?Ooom :JP'if'l<.3061§0 001J?0u0b0!l?o m06b0
001J?0u0b01J?o x 0.14 (1)-(2) (4),.J (3)
0 $10,000
1 $ 3,432 $1,400 $ 2,032 7,968
2 3,432 1,116 2,316 5,652
3 3,432 791 2,641 3,011
4 3,432 421 -1Qll 0
$13,728 $3,728 $10,000

72
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8oc::?OO(JC:::O 1000$-ob 8f'l803.::.e::;o c::?OMOO(JC:::OOob, 3c::?OO(Jc::;f'lom:
FVA 2 = $1,000 = R(FVIFA 1o%. 2) = R(2.100)
M0(Q()<>5, R = $1,000/2.100 = $476.19. ())00lf'lO(Je:::'0 1000$-ob CloG3e:::'0 QJ3030e::;o6@>(JMO
f'JP'ioe::;o.::.60 .::.5(Jo@)o@>om 8f'l83Go8G 476, 19$ 20 oe::;oli 0 .::.5803e::;f'lo.::.Clo.

0 1 2 3 4 19 20
I I I I I
I I I I I
I I
$476.19 $476.19 $476.19 $476.19 $476.19 $476.19

PV A 20 = $476.19(PVIFA 10%.20) $476.19(8.514) = $4,054.28

0'?30d@>o.::.5o oe::;o(JMO G.::.P'i 0 ooe::;oG 0.::.50J3omo = (1 + [i/m])m - l

= ( 1 + [0.0706/4]) - J
4

= 0.07249 (1:Q00be::;Mooom 7.25%)

.::.a 03 0P1.::.rr;, 11 30 5 03 .::.d3 G .3P'if'lGo6@>oooG w0 3oe::;J 3.::.r¥l@>.::.e::;()Mo !:Q.:iP'io 8 b3.: . !:Q0 G"Jomoom
10000$-oG 0630G@>oP'ioo0li 7 ,06%-om, Mf'l8oe::;oG !:Q00P'i0Gboo.::. tJM30e:::'J3"M@>.::.e::;(JMC>CQ 7
m30G 0 .::.68.::.3e::;Mo0Clo (8omomoo.::.: 7 m30 00 0300, P10G 21/3 J3<>M@)0e::;(JP'io .3oMof'l(Qo),
8oc:;oo()e::;o:
$10,000( l + [0.0706/4))2-33 = $10,000( 1.041669) $10,416.69
FV A 65 = $1,230(FVIF A 5%.6s)
65
= $1,230[([1+0.05] - 1)/(0.05)]
= $1,230(456.798) = $561,861.54
f1 30 5ti ,,Go6eoooG CJ 085.::.b 30 e::;G" od5oo01!:Q<> ()Jomol>o !:Q060'bM 0 o, Cf?0'bf'J 0 oe::;o 80 5eooo
momf'l,'.J()e:::' ooe::;G Mf'l8 0 06om03Gooo6.::. Clo850b3oe::; 05 0 0M0Cl'bo oe::;o()Mo 5%-0060
(QC>Mo(.3b3om ($561,861.54 - $80,000) = $481,861.54 -- 06 48,186,154
$50,000(0.08) = $4,000 dMf'l(.305@>oli ()<>(Q<>b<ib(Q;Je:::'O
$ 7,4 5 l .4 7 - $4, 000 = m0306oli 30(Q0li0bu;wc::;o
8me::;o06 ()<>(QC>b(QOOl.i - 8me::;o05o m036ob ()0(Q0b!:Qooo
C,0(Q0b(Q30b
$74,514.70 - $50,000 =

73
 Rich, Steven P., and John T. Rose. "Interest Rate Concepts
and Terminology in Introductory Finance Textbooks."
Financial Practice and Education 7 (Spring-Summer
1997), 113-121.
Shao, Stephen P., and Lawrence P. Shao. Mathematics for
Management and Finance, 8th ed. Cincinnati, OH:
South-Western, 1998.
Trainer, Richard D.C. The Arithmetic of Interest Rates.
Federal Reserve Bank of New York. (Available free of
charge from the Public Information Department, Federal
74
Reserve Bank of New York, 33 Liberty Street, New
York, NY 10045, USA).
Part II of the text's web site, Wachowicz's Web World, con-
tains links to many finance web sites and online articles
related to topics covered in this chapter.
See, especially,
Annuities: Ordinaty? Due? What do I do?
and Annuity
Problems
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V= + + ... + - - -
(! + kd)1 (1 + kd) 2 (1 + kd)
I
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(1 + kd)'
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= I(PVIFAk
d'
J
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0 ..,6bo<.:.?30!!?"6, oood<.:.?06" o"M3"!!?oo6Mm oo8!!?ooo u"bom:
v = I/kd
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v = $50/0.12 = $416.67
Ob .)Mob 8.)dbo8(J80 O'l.)6b..,, MM80c:?OU o"!!?"b!!?"U"G md306 OU(JM306!!?00'l ..,8 M6<.:.?0o.)GO"'l>o
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+--
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MV

= I(PVIFAkd.n) + MV(PVIFkd,n)
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uo8ooiaou !:!;'OM06()!.:.?06".
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v= $100 + $100 + ... + $100 + $1,000

(1.12) I (l.12) 2 (1.12) 9 (1.12) 9
= $IOO(PVIFA 123.9) + $1,000(PVIF 123,9)
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Go6&o..,6o "6(Jo&o&ou !:!;'OM06()<.:.?06ou .3MMG068()<.:.?0 JMO'?JOGoo6&o
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0 30K30606u, MM8 "b<.:.?"61!?0<.:.?o !:!;'OMOO(J<.:.?OOob .3MM(3068(Jc:?O JMO'?JOGoo6&o (3bM.) .3oMoM!!?OU
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v= $100(5.328) + $1,000(0.361)
= $532,80 + $361.00 = $893.80
U.)Moo6<.:.?ob o"!!?"b!!?o6u "d3u 532.80$ "b<.:.?"61!?0<.:.?0 !:!;'OMOO(J<.:.?06", U"!!?"G Q),')36ou o"fo!:!;'!!?OOOU
bo8ooiaou <>d3u 360.00$ "b<.:.?<>61!?0<.:.?0 (0060036.): 830<.:.?" Ob b(JM.)O'lO .)MOb
8o"b<.:.?M06omo, M.)!!?o"6 o"8M::Jo6oo(JC'.? (3bMoc:?oooo "b<.:.?"61!?0<.:.?0 !:!;'OMOO(J<.:.?06" 8Mo3"<.:.?!!?06" 3
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78
 01() oob.:.o.:.8obo !:QObJf'l6tl!Job 0060J30010 M;)ob 8%, 12%-ob oo'tl.:.booob 006-
od6oo.:.:

v= $100 + $100 + ... + $100 + $1,000

(1.08)1 (l.08) 2 (l.08) 9 (l.08) 9

= $100(PVIFA 8%.9) + $1,000(PVIF 8%.9)

!:Q.:>60M0100 II !:Q.:> IV oob.:.o.:.8obo Jr'1.'.J'lJOGoo6tl!Job 60b3001,
11306 0063b.:.'bc:;3M0301, Mf'l8
v = $100(6.247) + $1,000(0.500)
=$624.70 + $500.00 = $1,124.70
.:.8 00801b303000, .:>ff.:>MO.'.Job 8ob 1000$
M.:>(Q3.:>6 306.:>J30010 .)Mob 30!:QM.'.J J()df'l-
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8006(3 oc:;aob 8f'l3.'.]00b. ob 8f'l3.'.J00 .:>Mob oob.:.o.:.8obo '(J0bo.:.6o
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MV
V=---
(1 + kd)"
= MV (PVIFk".n)
CQ03()03001, Mf'l8 ob.3o6f'lb.:.b b.:.15.:.M8f'l 308f'lb(308b J(J.3f'l6ob
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v = $1,000
(1.12) 10
= $l,OOO(PVIF 12%.IO)
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0.322. 08330M0CQ:
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79
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u"C!?"O kd .:iMou 0 060J3omo, 1/2 .:iMou 60bo-
J(J.3M6'bo m06b0 !:!?" 2n oMou .3oMoMQ?O
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= ($50)( 11.469) + $1,000(0.197) = $770.45
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V= ±
t=l
Do(l.10)' + [
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I ][ D6
(I + kc) 5 (kc - 0.06)
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O"l'ZJ 808(!?060610 (!?030(!?06(!?0 Do 061oli 2$ o61m 0d(300 'b.'.J (!?0 li0613ooe;_>oli 8fYlmbfY136oe;_>O 8060J3omo
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V= ±
t=I
$2(1.10)'
(1.14 )'
+[-I-][
(1.14 )5
$3.41
(0.14 - 0.06)
]

= $8.99 + $22.13 = $31.12

84
 'tl0'b0 1. U?030U?:J6U?:JoOu c:;op;oc,
(J6i:l10 om% s
i:Qo3ni:Qo6l:Q31'ol>
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2 2(1.10)2 = 2.42 00 1.86
3 2(U0) 3 = 2.66 0.675 1.80
4 2(Ll0)4 = 2.93 0.592 1.73
2(1.10)5 = 322

[±
5 0.519 1.67

$2(1.10)' ] $8.99
t=l (l.14)'

(!{030(l?06Q?:JOO a:i-6 oc;,iob Q?.'.>U0UM'2)c;,1U = $3.22(1.06) $3.41

"dGonb 8:i-5 CQ0l.i0bt;\(Jc::;•b = D6/(k.- g) °"' $3.41/(0.14 -0.06) = $42.63
6c0nl.i = ($42.63)(PVIF 14%.s)
. = ($42.63)(0.519) = $22.13

+ $22.13 = $3 l.12

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85
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o<>Goou 6.:iJ<>!:!?ooou .
ooli.:io.:i8ouo Jl'10'lJOG0068oooucn3ou R3o6 301:106oocn 08
6o 0 6oli !:!?<>6.:iMcnoo II Cl?" IV
V = $80(PVIFA 10%, 12) + $1,000(PVIF !0%, 12)
= $80(6.814) + $1,000(0.319) = $864.12
10% C!?oliJ(Y)68ou 006<>J3ocno oo!:l?Oo"C!?
M<>G 8080<> 761$ 8081:!?06.:iMo li.:io.:i'bM(Y) 'lJ<>u'bo . .:i8o8(Y)8, ()61:!?<> 3G"C!?(Y)cn C!?oliJ1'168oli
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V = $80(PVIFA 15%,d + $1,000(PVIF 15%, 12 )
. = $80(5.421) + $1,000(0.187) = $620.68
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86

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[ 0.15 $620.68
x $103.12 x = (0.05) x ($103.12) = 0.0212
0.05 $243.44 $243.44
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4 1,080 0.572 617.76 0.636 686.88
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4 . 1,150 0.735 845.25
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2.

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i--------------$1.60( 1.20)1 ,,;, ________ _
2 1.60(1.20) = 2.30 2
x 0.743 1.71
3 1.60(1.20)3 = 2.76 x 0.641 1.77
4 1.60(1.20)4 = 3.32 x 0.552 1.83

5 3.32(1.13) 1 = 3.75 x 0.476 1.79

.6 3.32(1.13)2 =. 4.44 x Q.410 1.74
7 3.32(1.13)3 = 4.79 x . 0.354 1.70
8 3.32(1.13)4 = .5.41 x 0.305 1.65

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(l.16).
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.:idooou 8 -- - = $64.33
(k. - g) (0.16 - 0.07)
64.33$, 8 = ($64.33)(PVIF163•8)
= ($64.33)(0.305) = $19.62

v = $13.85 + $19.62 =

96
 lio8fio'?3o8<QD (J'?JM(Y) 3o<QMD 8% J(J.3rry6oli
0 .:i6.:iJ3omo, lil.:i8<QD6"<Q"G o0 o Ol:JO(QDO" (QObJrry68olilooom m.:i3oli
0D<Q"MD00(J). lio8fio'?3oa<l:?D1
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(l+YTM -1. 0D<QD8"!:!?·
oo8<l:?Do6.:iolil.:i<Q:

$935 = f
1=1
$40
(I+ kd/2)'
+ $1,000
(1 + kd/2)20

= ($40)(PVIFAkd 12.20) + MV (PVIFkd12.20)

.:ia kJ2-ol.i YTM) .:i8rrybli6oli.:ili Jf')8.3o-
.)('lirry 0.:ilil.:i8oli .:i6 <Q.:>b8.:ililooom 4,5%.
YTM .:iliom Clo8mb303.:iClo .:ililoli 2X4,5=9%.
fo'?3Dd8o.:>6o YTM .:ililol.i ( 1+0,045)2-1 =9,2025
P0 = FV20(PVIFk/2,20)
(PVIFv2•20) = PofFV20 = $312/$1,000 = 0.312
oo 0 6ol.i (Q.:>6.:ililmoo l-!:!?.:i6 ('lirry8 JrryD'?JOGoo68o 20
.3oliJorry(Qob.:i 6%-ol.i.:il.i 0,312; .:i8o8rry8
lio8fio'?3oa<l:?D (YTM) .:ililoli 6%.
YTM = 2 X YTM)
x
= 2 (0.06)
= 12 percent
2
(D'?3Dd8o.:i6o YTM= YTM) - 1
2
= (l + 0.06) - 1
= 12.36 %
k 0 = (D/Po + g) = ([Do(l + g)]/Po) + g
= (($1(1 + 0.06))/$20) + 0.06
= 0.053 + 0.06 = 0.113
<Qo3o<Qo6<l:?oooli = D/P0 = $1(1+0.06)/$20 = 0.053
'bM!:!?O(Q.:>6 g = 0.06
V = ($140/2)(PVIFAo06,6) + $1,000(PVIF0.06 •6)
$70(4.917) + $1,000(0.705)
$344.19 + $705
= $1,049.19
V = ($140/2)(PVIFAom.6)+ $1,000(PVIF0.o7.6)
$70(4. 767) + $1,000(0.666)
$333.69 + $666
= $999.69 06 $10000
()6<Q.:> (J(QMOQ?Dli 1000$-G, ('lirryG"
J(J.3rry6oG 0.:i6.:iJ3omoli; fl3o6o .3.:ili(Jbo 1000$-li0.:i6 0.:i6Gb-
3"3C!?Do.:i 0.:i8rry).
V = ($140/2)(PVIFA 0.08 •6) + $1,000(PVIF008•6)
$70(4.623) + $1,000(0.630)
$323.61 + $630
= $953.61
.:i8 8o.3oG D93(Jd6o6.:i lio8fio<aoli
!QOUJM68li. 11306 (JJ3D o"3"JDmom oli .:i. Jomb30G
.3.:il.i(Jboo !:!?" 8.:imo .:i01oG (i) $705; (ii) $666; !Q0 (iii) $630.

97
Alexander, Gordon J., William F. Sharpe, and Jeffrey V.
Bailey. Fundamentals of Investment, 3rd ed. Upper
Saddle River, NJ: Prentice Hall, 2001.
Bauman, W. Scott. "Investment Returns and Present
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Upper Saddle River, NJ: Prentice Hall, 2001.
Reilly, Frank K., and Keith C. Brown. Investment Analysis
and Portfolio Management, 7th ed. Cincinnati, OH:
South-Western, 2003.
Rusbarsky, Mark, and David B. Vicknair. "Accounting for
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Brokers' Valuation Formulas." Issues in Accounting
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Shao, Stephen P., and Lawrence P. Shao. Mathematics for
98
Management and Finance, 8th ed. Cincinnati, OH:
South-Western, 1998.
Siegel, Jeremy J. "The Application of the DCF
Methodology for Determining the Cost of Equity
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46-53.
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Understand and Analyze Fixed Income Security Prices."
Journal of Financial Education 25 (Spring 1999),
46-63.
Van Horne, James C. Financial Market Rates and Flows,
6th ed. Upper Saddle River, NJ: Prentice Hall, 2001.
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Woolridge, J. Randall. "Do Stock Prices Reflect Funda-
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(Spring 1995), 64-69.
Part II of the text's web site, Wachowicz 's Web World,
contains links to many finance web sites and online
articles related to topics covered in this chapter.
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= [0.012825] 05 = 11.3%

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122
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 2.

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124
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m()800, 0donnG 'tl0li80 CQ0ntin0 CQ0 8nlin li0610oooe:;;n 06inli 12.8%.
0donnli 'tl0Gn, 8oMMO 8bl"in3, Cloli0008nli0CQ 01'1nG CQ0 8nlin
01'1nli 10.6%. 8M6n 06in 01'1on&l'00tin ntinCQnG 0jonooli CQ0 00tinCQnG
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125
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126
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4 -0.05 -0.10
5 0.02 0.02
6 0.00 -0.03
7 0.02 0.07
8 -0.01 - 0.01
9 -0.02 -0.08
IO 0.04 0.00
11 0.07 0.13
12 -0.01 0.04
13 0.01 -0.01
14 -0.06 - 0.09
15 -0.06 0.14
16 -0.02 -0.04
17 0.07 0.15
18 0.02 0.06
19 0.04 0.11
20 0.03 0.05
21 0.01 0.03
22 -0.01 0.01
23 -0.01 - 0.03
24 0.02 0.04

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127
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d308f'lm, odGooli 00&0Lim06 oiYlmo(Q.

I. Stillman Zinc Corporation 17.0% 1.3

2. Union Paint Company 14.5 0.8
3. National Automobile Company 15.5 I.I
4. Parker Electronics, Inc. 18.0 1.7

Ol(J 0P1oli l.iOf'lMO, odGoooo od6000 'boe!.?80&0C!?

(m() 0P1oli 0liomo)? od6000 (m() 06ioli 0liomo)?
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0630t.i<!!>oe:ioo
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One-Legged Chair Company (WOOPS) $ 6,000 0.14

Acme Explosives Company (KBOOM) 11,000 0.16
Ames-to-Please, Inc. (JUDY) 9,000 0.17
Sisyphus Transport Corporation (UPDWN) 7,000 0.13
Excelsior Hair Growth, Inc. (SPROUT) 5,000 0.20
In-Your-Face Telemarketing, Inc. (RINGG) 13,000 0.15
McDonald Fam1s, Ltd. (EIEIO) 9,000 0.18

c). 6i0 0P1oli 8olio

o. P10 od6000 8olio m() Bolio 063oli&oGoG00 Excelsior Hair
Growth Jf'lMdf'lMoG00000, 00o'bP1Cl.?000 f'lmb3i:oP1 Cl?" lib30 Cl.?0P18000 00030?
8. lio&o lioP13olioli JP1Md<'1MoGo" 000P18f'looli oo6f'looooli -
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0dG00 (<!!>OJOM o0<!!>0
Nanyang Business Systems (NBS) ·-·--·-T;rn-·
Yunnan Garden Supply, Inc. (YUWHO) 0.80
Bird Nest Soups Company (SLURP) 0.60
Wacho.com! (WACHO) 1.80
Park City Cola Company (BURP) 1.05
Oldies Records, Ltd. (SHABOOM) 0.90

128
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M.:. .:.MoG U?" o"C!?"bM.:.,

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R.; (R;)(P;) (R; - R )2(P;)

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0.05 0.20 0.010 (0.05 - 0.20)2(0.20)
0.20 0.40 0.080 (0.20 - 0.20)2(0.40)
0.35 0.20 0.070 (0.35 - 0.20) 2(0.20)
0.50 0.10 0.050 (0.50 - 0.20)2(0.10)
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(0.027)05 = 16.43% = a

odfioo.:. .:.5 o"C!:?"b(i).:.

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129
 40% ci5 80&0 8305 = 1.217
oil(QC>b61cili. oli dO(QOoO ci61oli Clo801b3030G 8G3ci3Go, 00030, 61MGC>
ci5 (Ji>611:JM<?:JOOlO o8oli 61M8 lioCQO(QO
ci61oli 8M()OOO(Qil0 8ci61'.$G3603 (Qi> ci61ci 8ci61ob503. dO(QOo"C!?' 40% ci5 80&0
ci61oli 11 %.
2. 0. R = 8% + (13% - 8%)1.45 = 15.25%
o. Ol(J 0 ci8M308060001 (Q030(QOO(Qoli 8(J(Q8030 'b61(Qoli o30J5ooci

p = = $ 2 (1.IO) = $41.90
O ke - g 0.1525 - 0.10

0 . R = 8% + (13% - 8%)0.80 = 12%

P0 = $2(1.lO) = $110
0.12 - 0.10

o:?.:>6061010 0-l; 013omCln<t10l>nool; 08M(3060!.l .:J0b(Jbn

3. RP= (0.60)(0.10) + (0.40)(0.06) = 8.4%
2 2 2
O"p = [(0.6) (1.0)(0.05) + 2(0.6)(0.4)(-0.35)(0.05)(0.04) + (0.4) 2(1.0)(0.04) )0.5
'bo8Moi JM3ci61ocioocili (-0.35)(0.05)(0.04)
0.6 (Q" 0.4 M61'.$Go61
- "JO(QC>O, M61o ci61oli no5 . (QC> JMO<?:JOGoo5-
&ooo ci8 3ci61ociooooli
O"p = (0.00082) 05 = 2.86%

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Part II of the text's web site, Wachowicz 's Web World,
contains links to many finance web sites and online
articles related to topics covered in this chapter.
131
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8M(!(001 360bM01 JM8.'306oou "Aldine Manufacturing" a:iodc:::>:J00 l>MI> MM8:J O:JG!J:1M80'80
a:i801b3n30'80 MM0MM 08()'803nou nu. {!(03()'83001 20X2 O:JtJ306ou 8o'b6001, 01'108:ia? fo1'1fl:i6o 801'10 0:ioob n63:i6&0-
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$2,918,000 $1,500,000 1.95
Ol:JMU
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$2,241,000 $823,000 2.72
'BoGo:i6&:ioo, MM8 1'108CQ:J60!Q
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$2,241,000 = 2.72
$823,000
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144
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l:Qf'l6oli Clo'l3"lioooli013oli - 8ti03,:,-@;ioli@;ioli JfYl0'13oGoo6&o.
(hofl0'130 JC"l0'130(30D6&0. c:;,'OJ30l:Q()Mf'lOOU ()'13MC"l 8oe"U? JM6-
liofl3C>@;i(Jc:;,10 li,:,'bf'l8o ,:,floli 8t1,:,30·0olieo, ,:,6() bot'\0'130 JMD'l3oGoD6r?.io:
808!Qo60flo ,:,j@;io3000 - 80fl0 0 ooo
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JM8.3,:,6ooli013oli "Aldine Manufacturing" oli J010'130(3006eo 20X2 oc:;_ioli od6oo.:i:
$2,241,000 - $1,329,000 = 1.11
$823,000
oli J010'130(3006@:>0 0 08mo80600,:, 8o8c:.Qofoflo c:;,10J30!Q()Mf'looli J010'13oGoo6@;ioli !Q080@:>00001 JM8-
.306ooli ,:,6,:,c:;_io'boli !QMMU. 0()0 8lio,:,3lio0 8081:Qofoflo JMO<(J0-
(30t)6@;ioli, 0801.i ()08fYlJc:;,'00001, P1M8 808CQ060/\10 "D@:io3oooli Clo8C>l:QoD6c:;,iMOC>OO ,:,fl
0 00ai3,:,c:;_iolil50600,:, 80fl,:,0 ooo - li03,:,fl,:,(J!QMCQ, 8o8!Qo6,:,flo 0j@;io3oooli
6,:,ooc:;_io - 8flo(3b3oc:;_io!QC>6. JM0'130(3006@:io oboo,:, 808CQ060Mt) ,:,j@;io3oooli 80@:>0!Q
c:;,ioJ 30!Q(JM oc:;,io8o5&ooli - li,:,Cl()0c:;_i 0o001.i, 0U? 3oc:;,i"U? '(plio06
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'b(Jli@;i Clo<n0lioo,:,li, 30l:QMO 80813?06C>MD c:;,'OJ30l:Q(JMMOOU JfYl(J'(30(3006&o. Jf'l8Cl06ooliai3oli "Aldine
Manufacturing" 8tJ03,:,·@;ioli@;ioli JMO<(JOGoo6@)o fYlCQ603 80c:;0c:;_io,:, o6CQ()li@;>Mooli li0Cl()C>c:;,1M 8o!Qo-
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JM8Cl06ooh "Aldine Manufacturing" <'ln'bo()8tJ. 8olio 80813?060(>)0 !:Qo 8tJ030-@)oli-
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81.1?000<'100000. ai(J8(3o J01(J<(J0(3oo6@>ooo 01') 0li0b03li l:QOOo@;i01M(Jc:;,10 13?030c:;_io0600000 CQ0/ 06
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0j@;io(JMMooli J01(J'130(3006@;ioli 0 06boc:;_i3oli !QMMl.i. 8,:,608!QO !5306 Clo3060<'lfi(J60001 c:;_ioJ30-
l:Q(JMM00 'l:Jo 0Mc:;,1M !Q0UJ3060l.i.
li.:i.:idGoM JMD'130G01J6&0. 08oli013oli, MM8 O(J'130U!:QOli
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145
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Debt ratios - JMtJ<(J0(30tJ6- 8oo66o 801'16030(!/ 308M006301'10Cloo0 JM8.3.:i6nnl> G.:il>ol>bM 00l:JP'1'B001
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$1,454,000 = 0.81
$1,796,000

JMO'BOGno66n 030()06000, MM8 JMOU?06MMOOO (!/0C[Jn6.:i6l>oonl> 81 Go66l>

"DGOM6ol'1oonl> 8001'1 JMOU?06MM:JOOU013nl>
8M8 00 on.:i6o.:i, MM8 01.> .:i(i) Ol:JMl> 1'10 8 (J'BMM n0n,
8001 (J'BMM (!/O(!/ .:io06U?ooo6 odGnM6ot'loon (!/Ci 8001 80600 JM:JCJ?06MMOonl> CJ?"G3nl>
CJ?M6:J JM8.306nnl> .:id6n3oonl> U?"G:J8nl> .:i6 .3nMU?o.3n(iio Clo801b3030Cln.
0.301'1.:>6(JMOU n6(!/(JU6Mnnl> 6.:il>ol>boon (!?0 U0J(J010MO JM:JC[30(30-
o66nl> 8oCJ?nC>6(JMO .:>MOU 0.80, 08330MC>CJ?, ol> JM8.3.:i6n.:i C>MOU n6CJ?(JU6Mnnl> 6n.3(JMO
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od6oo.:i JMOCJ?06MM0001o6 .'.J'.:iMon l>ol>bnl> JMOCf30G0066nl> 308M.
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MM3MMG !.!?" .:it'l.:i l>oJ(J01.:>Mn . .3(iio3-
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eidonoonl> CloCJ?.:il'100001. Clo!.!?:J0C>CJ?, ol> nl>n6n
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b.:il>n001nl> CJ?" 6.:iJoCJ?oonl> 8MdMoMonl> 8nboCJ?3n01.
JM8.3.:i6n.:il>, 010301.>n 6.:>JC>{!/00001, l>.:iol'101M Clo801b3030Cln
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b.:il.>00010. JM8.3.:i6noonl> 6.:il>ol>boon CJ?Ci G.:iJ(J01oMn JMO'Bnono66oonl>
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CJ?Ci
od6n3oonl> JMOCf30G0066n JM8.306nnl>
00l:JM'B001 8nU od6n3oo'bo:

"Aldine" JM8.306onl>m3nl> 20X2 ol> JMO'Boono6&n nd6oo.:i

$1,454,000 = 0.45
$3,250,000

08 JMO'Boono6&l> 0d3l> 03030 8n'b.:i6n, M.:>G (!/Ci bC>J(J01C>Mn CJ?08MJOCJ?O-

JMO'Boono6&G. o0 o 0.:i8Ml:JM'Bl> JM8.306nnl> .:id6n3oonl> 08
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C!W00 45%-0060 (Gb30CJ?.:il>b30 G.:ibnl> ), CJ?Ci6.:i(Y)Ro6n 55%-ol> bCJ?oo.:i
G.:>J(JOlC>Mo 01() 'BoM8.:i 8.:ian6 8nl>n
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n&MMoo8.:i MC"l8 ,:,(ii 306000CJ?M6 CJ?"foJ.:>M30. ol> JOCJ?D3 08 'B.:id&l>, MM8 MC>G
80&00 U0J(J010MO 8001 80&00 JMOCJ?06MM:JOOU n6&ol'1ol>oonl> CJ?"G30U CJ?M6o.
M.:>G CJ?Ci 0d6n3oonl> JMO'Bnono6&n,
8001 Cf30606G(Jt'ln t'lnl>Jn; M.:>G JMO'Bnono6&o, 8001 'Bo6.:i6l>()Mn
MOU JO.
0"MCJ?0 0060 MMO JMO'Boooo6&nl>o 308C"l3n::Jo6M01 Clo8CJ?o0n JM:JC[30G006-
&oon, 0b0Gn001 0ol> JM8.3.:i6nnl>

146
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italization ratio):

8mCO'..'o.:i6 J.:>.3o8.:>C0'..'1Q"0<>61QOO.:>
b.:>IQ"G 8mCO'..'o.:i6o J.:>.308"C0'..'1Q"o.:i61Qoo.:i .:i61ob tl30CO'..'" 0 61doC0'..'3"1Qo.:i6o Gobbo IQ" b.:i.:ij(3of'1 J.:>.3o-
8"CO'..'ob '.!(;"So. JM8.306oobm3ob "Aldine Manufacturing" of'1CO'..'f'1 5CO'..'ob 061doC0'..'3"1Qo.:i6o Gobbo
8mCO'..'o.:i6 J.:>.308"C0'..'1Q"o.:i61Qoo.:i'bo JM0'8oGoo6@>o .:i61ob

$631,000 = 0.26
$2,427,000
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C!/ooo&{YJM(Jc:;>o 8{YJ01b{YJ36oooli i>6"c:;io'boli tQM{Y)li 3otio6oom, 0lin30 00300130c:;iolifio6{YJ01 JMOCQo-
&P11'1(Jc:;>n 3"c:;'CQOO(Jc:;>[JOOooli b06CQ0'b8(Jc:;>{Y)o0, M{YJ8oc:;ioe d0c:;io06 a003li fl306li 8001'1 006b-
oc:;i(Jc:;> U?ooo&{YJM(Jc:;>08P1mb{YJ36oooli b06tQ<> 'b8(Jc:;>{Y)Oi>li. JMOU?08{YJM(Jc:;>o 3<>c:;>CQOO(Jc:;>Oooli
OM(J63oli (payable turnover PT) J{YJO'i30Goo6&0 008{Y)o013c:;ioo0, fic:;io(JMO JMOCQ0&001 ooli-
tJOtQ3:JOoli OM(J630 o"tJ{YJ'130c:;'O JMOtQ08{YJM(Jc:;> 3<>c:;>CQ[JO(Jc:;'OOOb 60Clm'bo. f\306 0003odc:;io0
0lio30 008{YJ300130c:;i{YJ01 JMOCQ08{YJM(Jc:;>O 3<>c:;>CQOO(Jc:;>Oooli 01'1()630 C\?1:'.;0{Y)Oo01 (payable turnover
in days PTD) 06 3"c:;'tQOO(Jc:;>Oooli 8"U?"b(.Qoli li0Cl(Ji>c:;>{YJ .3o(Y)o{YJCQO

C\?C'.?[JOOO fioc:;iofii>CQdO
(6.10)

JM[JtQ08{YJM(Jc:;'O 3<>c:;>CQOO(Jc:;'00000 X tQC'.;O[JOO fioc:;iofi0CQOO

(6.11)
fic:;io(JMO JMOU?o8om oolitioCQ3000
li<>tQ"G JM:JCQ08{YJM(Jc:;>o 3"c:;'tQOO(Jc:;>Ooooo <>Mob o"C!?"(JbtQOC:::{YJ6oli li0o{Y)c:;i{YJ{YJ (05 li<>Cl(Ji>c:;>{YJ)
00c:;i06lio 01'1010 fic:;ioli013oli CQ<> fic:;io(JMO JMOCQ08om oobtJOCQ3:JOO 0Moli 001'10 ClolitioCQ3:J60 fic:;ioli
0 06803c:;i{Y)o000. oli (30'(3Mo 0b0lio001ooli J{YJ8.306ooli JMOCQn8{YJM(Jc:;> 30c:;>CQOO(Jc:;>Ooo6oli
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150
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3<>(Qub!Qob !Q<>b0oso600 tl?"

o<>!Q<>blQOb dOMOM!QO <>Mob J0Mo0 o6'?JMM80(300 08 Clo'B0booob013ob,

MM8 JMOCQO@Job 80!Q00b(Qob 01'() o<>lQ<>bQ?ooob 3"lQ" <>Mob 48
!Qc.::10 cr.?" OO<J?(Jb@l6100Clo o"<J?"b!Qol.i dOMMOOOO "6o@JM 30 Cl?c.::'O") 80006 oli 60Cl6.:i3Li,
MM8 dM@J06(30(JMO u6auMOO::JOOl.i <J?<>MR0 8"!.Q"b<J?ol.i 3<>!QOl.i
oo8!Q0o· dM@J06(30(JMO li<>JM::J!QO@JM ol.i@JMMool.i
!Q<>c,ob806100001 c.::'M80!Q 0 0061J3001 lio@l()<>(300Clo.
80<"l.:ianoou MM8 0u63Li.:i'bc.::'3MM01 6108<J?o6<><J? O'BOd@lo060CQ 8.:i610103Li JM8.50600
8.:i610 00 0t.i (CQ<> <>Li 030 , rYiM8 8o 3oc.::'M01 8.:irYi0 00 ool.i Clo'B0Li 000), R30 6
306 0 0rYioClM001 80M0 0 oool.i OM(J630Li (invento1y turnover - IT) JMO'?J0(3oo6@lli:

12)
80rYi00000
"Aldine" JM8.306ool.i013ol.i 20X2 JMO'?JOGoo6@lo oj6000

$2,680,000 = 2.02
$1,329,000
blQ000 orYi010
80Mi>QOOOl.i
fi306Li Ol:JMli 80rYi@lo30 'bMCQOl.i
l.io@J(J'>(300l.i013ol.i 0 08M30tJ06Mm l.i0otiol.io !Q<> 80M0 0 oool.i
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830()06000 Mil8CQo6:;i:OM b(QOO" 80M0c,oool.i OM(J63.:i o<>tJO!Q30l.i 80030Moo01
oli JMO'?J0(3006@Jo, l.ib30 Jf'l0'?J0(3006@loool.i 3l.i 0 03l.i0CQ, (JG!Qil dO'?J'>liCQOli
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151
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8(Y)dM0 3o, 60CJ060.
8(Y)omb(Y)3(Y)O f\08(Y)OJM0, M.:>80(3 Clo.:i8(30M(Y)li IQM6J,
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061Q(Jll<.!JJM000 OM(J6300 JMJ'30(30J6<.!l.Joo 8JIQ006()Mli 3.3-li. ali
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061Q(Jll<.!JJMooli ClJIQ0MJOom oli 80M030000 3'0Mo M.:>(Y)IQD-
6(">')000. 00.:.1!?000 0lio30 Jomb3.:i, Clooli00.:i8000 m(J 0M0 80M030ooli 8.:im
m(J 0(;:) Clooli0008000, JM8.3.:i6ooo 0(;:)oli
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8.:i(;:)03oooli f\306 ()61!?0 030 (J'BM(Y) li.3oGocaoJ(JM01Q 8000 8o'bo'boli
3.:i6li0 'bc;3Moom3oli.
80M030ooli .:id<.!JJo(JMMooo li.:i'bM8o .:iMoo 8.:iM.:i3oooli OM(J63.:i tQc:?OOooo
8obo1Q3om (invento1y turnover in days ITD):

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"Aldine" J(Y)8.3.:i6ooom300 8.:i(;:).:i3oooli OM(J63.:i, f\306 3.:i8(Y)30.:i63.:i(;:)oCJom .:iMoli 2.02,
8.:iM.:i3oooli OM(J63.:i IQc:?OOooli 8obo1Q3om od6oo.:i (ITD)
365
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2.02
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0"1!?"tl3"6olim3oli 0"tJOIQ300 0'born. o61Q(JO<.!lJMooo 8.:i(;:).:i3oooli OM(J63oli 8otQoCi6(JMOli
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8(Y)mbM3600Clo, 301QMJ oli b!Qoo.:i 061Q(JO<.!JJMooom3oli.
!QCi .:id<.!l.Jo(JM(Y)-
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152

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JP18:.l,:,6o<>b01<>6 ooi:Q<>Mooo01, "Aldine" JM8:.l,:,6o,:,b b::foMi:QOO<> i:Q<>8<>800001 87 l:Qc:?O 08ob013ob,
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Clao83 oc::iao<>8 C!?Dc::> JM83,:,6o<>b b<>Cl(J"c::'Do"
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8oOM(Q[JO<>. 8i>::JOl:Q3:JOOb i3MMG::Jbob !.!?" 8M8b8,:,t'1a-
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c1oe:,om0!.l10 .JO@lff1lfiiMaou aeiR3::J60a<::!?::JoO 2003
8MmbM36aoob OM(J63ob Cla8oot'1ao<>b 28
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154

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8f'18oo'Boooli 30CQ0, 80<"\0 00 ooli 80t1im 30G 0G 030 003 G 50Je:;if'1 305 0oooo. 08 8f'150 80 80-
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$3,992,000 = 1.23
$3,250,000
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030R305ooli ooli0008oli O'BOd@>o05f'100li, Mf'1(30 Jf'18.30500 OtJo5ooli 8oli 0deo3ooli
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08 8b<"\03. 8olio CQ030e:;io05oooooli CQ0 80<"\00000!.i 0d@>o()Mf'1ooli 0050 050e:;i-
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8M8 0 <J2io,::,6Mi'mli JM[l'tJOGo<J61§oco 0<"\oli f'1Mo li0boli - Jf'10'?JOGoo6@>ooo, 0li0b0306
8f'18 00 0005f'100G 0 080CQ 30 00106 CQ08f'1JOCQOO(Je:;ioo000 CQ0 8f'18 00 0006Mo0li o5 30 u00 8 0000106
CQ08f'1JOCQQO(Je:;'[J000o. [Jb JM[)<?J0(30[J6@Jooo [)MO'l0CQ (JfS3060006 JM8.306ooli M.30<"\-
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0063oboe:;i03m 0<"\oli li0<"\mM 8f'10oooli 80<"\tl0:
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$1,312,000 = 32.9%
$3,992,000
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8:JCQ005(Jf'1'bo 23.8%, 6'>0G ()R306ooli, MM8 ooli0008oli0CQ o0 o 0<"\oli (J<?JMM O'BOQ@>o05o, 6'>0!32006
000M8M.'.]Ob CQ0 tJOCQob .3MM(!,1(J0(300b 80c;0e:;io !:!;OM.'.JO(Je:;':J0001.
155
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a>(J8G, 8o8a,o6,M[J J"';J'IJOGon68o 8GoMa,;Jo,, 8,61.>, Mf'>8 030 ,Mnl> (J'IJM"' J,M3n o6a,(Jl>8Mool>
J"'[J'IJOGon68cn,6 O[JO<OMQOocn

20Xl 20X2 20X2

"ALDINE" 06C!l'ZJL><!!J<">OOL>
a::JC!I0.::>6'1<">0

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50
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20XO 20Xl 20X2 20X2
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n0 n30, a,fio0 oon& ol'iCJ63.;(Jn f!?C::Ooon& 8nbof!?3ncn

200

150

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"ALDINE" 06C!l'ZJL><!!J<">00l>
L>So'ZJ0t!!;f'l 8::JC!I006'1<">0

2,.:, 8o!Q 30 oou a(Y)a 80 oo.:.5(Y)oou ()'8M(Y) ua 08 o'80J(JMO u.:.'b(Y)ao .:.Mou oao5!Q.:. a(Y) 80 oou 8.:.M\'J.:.:
o8o5!Q.:. a(Y) 000.:. 0 .:.!Q.:.u.:.b.:.!Qooou Clo8!Q::J8
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$201, 000 = 5.04%

$3,992,000
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156
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u80i:JOC!(30C!(06 8C'130ooooli ooli0008oli0(!( 80c;0!:'.?o :QC'16o", 30C!(MO o6Q?()li@>cY\ooli lib3.:i ()80@>0li
JC'18.3.:i600li.
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OO(JG3!:'.?0C'.?o cY\.:i8(!(06080 oe'.?oli 8068.:.31:'.?Mo.:ioo, 8.:i8cY\.:i8 0806(!(0 8C'18oooli 8.:>MtJ<> oo8GoMC!(<>
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$201,000 = 6.18%
$3,250,000
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a(Y)c.000 063oli80Go.:i'bo .:i8@>JOGooli, MC'18 Ol:'.?C!("06o Ol:Jo6ooli 800 oj003li 80i:JOCQ30li 0P1010
CQMC'.?.:iP1oli 8oli0c;oo01:Q, 301:QMO o6CQ(Jli0P1ooli lib3.:i 0o.3(JMO JM8.3.:i600.
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JM8.306008 .3ocY\301:'.?"CQ 808criotJofo 'Bo606li(JMO JMO'IJOGoo60oli 0601:'.?o'boli 8001MC!(oli MM050-
60e:;(JMO 30P10.:i6®0 Jf"l8.306ooli O'BOd®n06f"Jooli oo'B0lioooli013oli. !:QO(J .3f"l6®oli .:.8 8ol:Q 0 f"l8oli
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oo.:i6f"lOOb 0bG6000. MM()MMG 0G0b(Je:;o0 6.4 b()Mom'bo, Mf"l(30 F\306 3.:i8P103e:;oom JM8.30600G
o8o6CQo 8M 0 oooG 80Mt.J0G 8me:;o060 0j@Jo3000G ocY\()63.:i'bo, F\306 3oc;oo01 8f"l 0 oo.:iG 063oli@J0Go-
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0 08(Y)3()Cl03nool> c/>l:JOl.!?3DOnb 8M80non06M00 x .::.d<?Jn3ol; D'BOd<?Jn1>6P10.::.

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6.20% 5.04% x 1.23
oMG 08061:!(0 8f"Jooooli 80Mt.J<> (Qo <>MG 8011:'.?0060 0j@>o30G OM(J63oli JP10'BoGoo6()o m3omf"l6,
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8061ti.:i010 CQ<> 8me:;o.:i5o 0j®o3oli 061()6300001, ooode:;oo.:i 0jf"l5CQob 8li 003lio 0 08018()003060G
Go8de:;03610. Geraldine Lim's Oriental Grocery, Mf"l80!:'.?lioG 0j3li 0806(!(0 8f"l 0 oooli 8.:i61ti.:i
8bMe:;MQ? 2% !3.?" 8me:;o060 0j@Jo3oli OM(J630 10, 0j3li 00 030 0 08f"l8()003oooli lio8de:;03filo - 20%
- MM 0MM(j Megawatt Power Supply J"18.3060.:ili, 6101801:'.?li"G 0j3li 8M 0 o6oli 0806(!(0 8.:i61ti.:i 20%
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157
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eleqtronics" c»c:;»6bn (llc:;nl; 61!(Q!QO '(}<)c:,>O $ 2,507 $ 11,310 $ 19,648 J.O 3.8 5.1
31 !QDJ0803P>n) !Q()One"'P><Jc:;o a"'cnb0136aoo 70,360 85,147 118,415 29.3 28.9 30.9
8>P>>3300 77,380 91,378 118,563 32.2 31.0 31.0
l>b3> 8n8!QnfoP>a 0den3aon 6.316 6,082 5 891 2.6 _ll _Ll
8081Qo60P>n 0den3300 $156,563 $193,917 $262,517 65.l 65.8 68.5
'13ndboP>ao;:Jc:;n >d8n3000, ll8o6!Q" 79,187 94,652 l 15,461 32.9 32.2 30.1
bb3> 3nld3c:;3>1Qn>6n 0d@Jn3000 4,695 5 899 5491 _bQ. _bQ. _11
801c:;0>60 0j@Jo3000 $240,445 $294,468 $383,469 100.0 100.0 100.0

30!!!:1l<Oo'il!!!:Oo0o0 !Q,) l>\>MGO(T)

JM:J!Qn@JMM;:Jc:,>n $ 35,661 $ 37,460 $ 62,725 14.8 12.7 16.4
8"1l<"l>"bcrwc:;n 33dGoc:;nG 20,501 14,680 17,298 8.5 5.0 4.5
Gb3, an8!QnfuMa ll,054 8.132 15 741 _il _b§. _il
8081QofoP>o 3"c:.'!QQO<JC::OOOOO $ 67,216 $ 60,272 $ 95,764 27.9 20.5 25.0
3n'idac:;3.>1Qn>fin Gal>bn 888 1,276 4,005 _M. _M. _1Q
8cnc:;o>6o 3>c:,>!Q::JO<Jc:,>(Jo300 $ 68,104 $ 61,548 $ 99,769 28.3 20.9 26.0
ll3ovc::a0"'0 3° >do 0ao0 12,650 20,750 24,150 5.3 7.0 6.3
37,950 70,350 87,730 15.8 23.9 22.9
o"<J6"6oc:; 0o0c:;n 80100 ;;., 121,741 141,820 171,820 50.6 48.2 44.8
8cn!!!:0060 b.>0doo"'
J.>'3ne0c:;o $172.341 $232,920 $283,700 79.l 74.0
8cnc;::o06n 3"C::!QOO'ZJc:,>()O(Joo !!1"
l»0doo"' J"'3"e"!!!;O $294,468 $383,469 100:0 100.0 100.0

JM8.'J06oob ''RB. Harvey 20XO 20XI 20X2 20XO 20Xl 20X2

elcqtronics" lla8Ml>03c:;ol> fi8nO!Q0 o>LJO!Q3()60 $323,780 $375,088 $479,077 100.0 100.0 100.0
063>Mnll300 (llc:;ol> 31 184.507 45.8 49.2 46.7
!Q:JJ3800P>o) b":JM"'"' a"'an°" $175,653 $190,581 $255,387 54.2 50.8 53.3
3"1l"!!13(JOOU, l>0otnmf'1 !!1"
"n<8n6ol>@Jn'i0oov!:!;'n b,:,("'i:;.;300 140,913 40.7 37.6 37.7
>OMM8o'tl0(300 9,595 2.4 2.5 2.3
JM:J!QO@Job b0P>:;.;o 0.5
a010no0 a"11<"L>"b"ll10o"a11<o $ 38,717 10.6 10.3 12.9
o>(!/>U>b<>(!/(JOO --2.:.2. --2.:.2. _.4.,2.
!>806(!1.> 8m330,:,
.
6.5 8P1 0 oool1.:> (!?0 05 001Ti0Cloli
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(!?C>J80@Jf'lli li00.:>'bf'l O:J(!?C>M:JOOUJO 0ei8f'llieib3oli "Harvey
Electronics"-li013oli lieio0'l:iP1 eitTioli 2000 (QC> <nn505li(JtTin .:>5 0 .:itTioo 0 oooli 08
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n6Q:?odbo oj5no.:> 121.0 [$85,147,000/$70,360,000] X 100). 6.6 Q:?0 6.7
0b0b03n5 (!?0 06001TinClo[J00li
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161
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JM83o6nnl> "R. B. Harvey 20XO 20Xl 20XO 20Xl 20X2
Electronics" ooc;:>o6l>n (31
foc:;Q!n $ 2,507 $ 11,310 $ 19,648 100.0 451.l 783.7
awJoaonl'\n) 70,360 85,147 118,415 100.0 121.0 168.3
Q!(JOOi!!JMM(Jc::'O (!103.>e,:>no6(JO(JOO
8.>!1\03300 77,380 91,378 118,563 100.0 118.l 153.2
bb30 aoall1n6i>lll:J odi!!Jn3aon 6,316 6,082 5,891 100.0 96.3 93.3
aoa(!1n6<>llln od8n3noo $156,563 $193,917 $262,517 100.0 123.9 167.7
->d803300, 08061!10 79,187 94,652 115,461 !00.0 119.5 145.8
bb3-> 3llld3c;:>3->Q!no6n od803aoo 4,695 5,899 $491 100.0 125.6 ll7.0
a01e,:ioo60 ->dt3Jn3noo $240,445 $294,468 $383,469 100.0 122.5 159.5
-------- ....
3.)l!!.'!.l?Q37Jl!!.'D3D30 Q!,:, lJ.)MGOC'l
·---------------
JM:JQ!Ot3JMlll(lc;:>n 3->c;:>Q!:JO(Jc;:>:JO:JOn$ 35,661 $ 37,460 $ 62,725 100.0 105.0 175.9
3"1l1"l>"bll1:Jc.:>0 aadl>ac.:> 0 20,501 14,680 17,298 100.0 71.6 84.4
l l,054 8.132 15,741 100.0 73.6 142.'4
&aa!nG:.Ma $ 67,216 $ 60,272 $ 95,764 100.0 89.7 142.5
30c;:>n 888 l,276 4,005 100.0 143.7 451.0
$ 68,104 $ 61,548 $ 99,769 100.0 90.4 146.5
odG"" 12,650 20,750 24,150 100.0 164.0 190.9
37,950 70,350 87,730 100.0 185.4 231.2
aO()GoOoc;:>a0:Jc::'O 121,741 141.820 171,820 100.0 116.5 141.l

$172,341 $232,920 $283,700 100.0 135.2 164.6

(!10 boodG°"' $240.445 $294,468 $383,469 100.0 122.5 159.5

·----·-

061l1Ddl>Ot:>D3'Vl!!.'O
J"'a3i>6onl> "R. B. Harvey 20XO 20Xl 20X2 20XO 20Xl 20X2
Electronics" ooaMl.io3e,:iaonl> 08o6Q10 (>OlJOll13l)OO $323,780 $375,088 $479,077 100.0 115.8 148.0
0630!1\003300 148,127 184,507 223,690 100.0 124.6 151.0
(oc.:in<J!l'in, 31 1l10J:J803!1\n) $175,653 $190,581 $255,387 100.0 108.5 145.4
3°l:JOll13:J0n, (!10
131,809 140,913 180,610 100.0 106.9 137.0
7,700 9,595 11,257 100.0 124.6 146.2
Jlll:Jll108nb b:.Mx,o 1,711 1,356 1704 100.0 79.3 99.6
$ 34,433 $ 38,717 $ 61,816 100.0 112.4 179.5
12,740 14,712 23,490 100.0 115.5 184.4
$ 21,693 $ 24,005 $ 38,326 100.0 110.7 176.7

162
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36idac::;pC!?n>60 3>c::ou 8n8C!?n6>1'ia 6>&oc::n 200,000 210,000 225,000
8"'JC::03>C!?n>6o JM:JC!?08n 100,000 100,000 140,000
36id3c::3>C!?n>6n JM:JC!?n8n 300,000 300,000 300,000
R3:ivc::aol'io 3o >dGoaon 100,000 100,000 100,000
3>v6>&nc::303c::o 8"'330, 500,000 550,000 550,000
$1,430,000 $1,560,000 $1,695,000
3,80C!?3:JOO $4,000,000 $4,300,000 $3,800,000
t'i;pc::o'b3ovc::o t,,3, m3omc;ot'i3ovc::ao> 3,200,000 3,600,000 3,300,000
&8o6C!?> 8ro330, 300,000 200,000 100,000
--------·-----·------·
.'>8 ffi.'>3d0 JM:J'80(30:J68:JOOU 0 .'>8Mtj:J6:JOOm 1 JM8.3.'>6ooU
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-"d t\1_,,oa::i
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U,J(JO>,Mo J>Jo8,c::nb 36id3c::3,C!?o>6

3,C::C!?:JO<JC::OO,um,6 C!?>8MJOC!?:J0<JC::00, 0.5, 1-'ba
8mc::o,6o ,d803aoob ot'iv63> 2.5 J::JM
iavc::ob >8roc;3oob li>llv,c::ro .'l3t'io"'C!?o• 18 C!?c;a
a,t>i, 30 001.i ot>iv6 3, 9 J:Ol'i
1.i,3t'imro 8ro33oou a,61.,, 10%
atl,3,·8al>8 J"':J'(l0(30:J68o I, I m>6
• C!?,3<Jd3,°' b()C::Ob>C!?do ,t'iou 360 C!?c;O C!?, lJ30C::,
3,lJOC!?3, 3>6brol'i(300c::C!?, JMOC!?o8Clo.

168
 foC!;l1/0 q)C)(!!'O _$_ _ 33dl>ac::noo O?o 3oc::O?n1>CJc::nonoo $100,000
11/:JOOl!l>Mt<'ieJ(!!'O 8MmbM36300
--- 3t<ldac::3>11?M60 30(!!'11?30CJ(!!'QO:JOO
fl33CJc:>aot<lo3o 0de 0300
---
$100,000
80!<103300
--- $100,000
lla6""o> CQO oc;lf'::lt<l3oc::"'oo o>CJ6060(!!'::JOQ(!!'O 8MC,QOO
8mc::oo6o od803300 8mc::oo6o 3>c:>CQQOCJ(!!'Qo300 CQO
$ l>oojeo"' JOJo8oc::n $
---

J018.3.":>6o.':>G - Kedzie Kord - 001c::?01 G.':>80 bc::?oll 0.":>68"3c::?010.':>Clo .3d016CQ" <lo8CQ::JOo O.':>c::?.':>61.io CQ"
<lo8MG"3c::?OooG .":>6 0.":>l'i1o<l 0 oo.:i (.:im.:illoo<lo):

20XI 20X2 20X3

$ 561 $ 387 $ 202
8MmbM36300 1,963 2,870 4,051
2,031 2 613 ---11§1.
&aCQnfut'la >j8o330n $ 4,555 $ 5.870 $ 7,540
qindl>nt<lo¢CJC::O oj8o330n 2,581 4.430 4,364
od803o(>n $ 7,136 $10,300 $11,904
$ 1,862 $ 2,944 $ 3,613
3.>qnl> &aCQ06ot<13 fu6oqo 301 516 587
l>o0"6JM U:JUbo 250 900 1,050
$ 2,413 $ 4,360 $ 5,250
500 1,000 950
4,223 4940 5,704

$ 7.136 $10,300 $11,904

i?,OlJOCQ3o00 $11,863 $14,952 $16,349
U,jf'lGc::ol> 8,537 11,124 12,016
C,Ol)OCQ3()0ol>, doi'\omoCQO
2,276 2,471 2,793
bot<'i:J?.n :Jr.iroea68n) 73 188 _.12Q
8f'lc,o0o $ 977 $ 1,169 $ 1,340
390 452 _:ili.
&r.c,oOo $ 587 $ 717 $ 764

.3MMG060(Jc::?O (Q.':> o6CQOdll(JMO .':>6.':>c::?o'boll 0 .":>8011:106ooom <lo.:ica.:illom J018.30600G cao6.':>6ll(JMO

8CQ 0018.:ifi100100G Cl;?" .:id@Jo3010000.

l. ofi1mG0 CQC> 08030 o6CQ()ll0MO.':>d0 (lf'ld8oCQO Gb3.':>CQ.':>bb30 J018.3.":>6oob 8016.':>Go8000 .)Moll

d08CQ0()0 b.:ibob:

Jl'l8.3060.J

A B c D E F
001;10!!(3:)00 (8oc;,mM6:JoClo) $10 $20 $8 $5 $12 $17
.:>d&o300o (8nc:;>OM63000) 8 10 6 2.5 4 8
0.7 2 0.8 0.5 l.5 1

0.:.6b.:.'bc;:3l"1om 8mc::?o.:.6o .:.d@Jo3000G ofi1v63.":>, 68o6CQ" 801 0 ooob 8.:>MtJ.:> CQ.:> 801e,no0 b<>J(Jm<>l'i1
J<>.'3o@J.:>c::?'b:.J ROE mo0">01:.J(Jc::?O J01830600Gm3ob.
J0183.:i600G Cordillera Carson <>d3b Cl:.J8CQ:.JoO b0bnb o.:ic::?.:i6bo CQ<> <lo8Mi.>.':>3c::?DOob .:i6 0.:il'i1o<l 0000
20X2 fioc::?b (.:im.:ibno<lo):

169
 $ 400 $12,680
a"""bro36noo 1,300 _1,2lQ_
2,100 $ 3,750
aoalJ106.>t'in ,d8nanoo $3,800 8,i:JOC!<3n0nl.>, 111,
'1lodlinl'1n0cic::>o ,d8"3nbo 3,320 6&61J1, b.>l'i'.Ji::Jl>o 2,230
a°'c::'..ooo ,d,:iin3:J°'• $7,120 b.>l'i'.Ji:o _1§Q
$ 1,060
$ 320 _l2Q
260 $ 670
JM:J\J108n0n 1.100
aoa1J10fuMa $1,680
2,000

O[j6o"CJ36i>: (i) .'3[JMnM(!?Ob 480$; (ii) 20X2 8i:>Mi:>&JOO OtJM 1800$.

i>8 o6'?J(Y)M8i>(300b 0 08(Y)oi:>6 00"10Clom (a) 808(!?060"10 J(Y)O'?J0(30068o, (b)

8l'.Ji>3"-80b8 J(Y)O'?J0(30068o, (c) 8(Y)mb(Y)36ob dOMO(Y)(QO,
(d) 80"10 0oooG OM(J630G J(Y)0'?3oooo68o, (e) bi>J(JO">i>Mo CQi>8(Y)-
J(Y)0'?30Goo680, (t)
J(Y)O'?J0(30068o, (g) bi>OMO">(Y) 8(Y) 0ooob 8i>MtJi> 1 (h) 6'8o6(Qi> 8(Y)oooob
80"1ti" t!?" (i) 8(Y) 00 0.., G"J(Jmi>M
3. '?30606b(JMO J(Y)O'?JOGoo68ooo J(Y)Md(Y)Mi:>(30i> "RMN"-0Gm30G d308(Y)m:

20XI 20X2 20X3

80811106,1'13 J"':J'1J0(30:J68o 2.6
Bi:p3,-8nl>8ol.> J"':J'1loooa68o 2.1 1.0 0.6
3,c::>ol.> 111, Bmc::>o,6 ,d803no'b3
111,8MJOl11:JO()c::>:JO, 23% 33% 47%
a,111,33001.> 01"()63, 8.7X 5.4X 3.5X
1113008MM()c::>O 8MmbM36ol.>
,aM(!!:JOOU [,,(l(),c::'"' .3ol'ioM1110 33 111t!!:J 36111(!!.'.J 49111t!!:J
8mc::>o,6o ,d8033ool.> OM()63, 3.2X 2.6X l.9X
6806111, 8M 0:Jool.> 8,Ml'.), 3.8% 2.5% 1.4%
8M 0:Jo, 063ol>80(3M'b:J (ROI) 12.1% 6.5% 2.8%
8M 0:Jo, l.>,J()m,l'i J,.308,c::>'bo (ROE) 15.7% 9.7% 5.4%

0. "108(Y)8 800"1CQ000 8(Y)ooo0 0630G80000'1>0?

Oi:J(Y) O">(J i>Mi> 'l>MCQi> 808(!?060"10 'l>MCQOb 06
'1>"1CQob Clot!?ooo? 0blio6om.
J(Y)Md(Y)Mi:>(30i>'l>o "Vanier" 0"1Goo(Y)ob Clo8C!?ooo Li0boG 06'?3(Y)"180000:

$500 $ 400
aMmbro36neo ? 1.>.>Q,6JM ?
__? 800111oful'1n _1QQ.
,d8°3n00 ? aoa1J10fuMn ?
2,650
,d8n3nbo 3,750
,d8oanoo l.>.>J()°"""" ?

JM:JIJ10800J
?
--?
?
400
--?
(44%-ol.> a,foJ3nmoml --1.
__?

170
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08"'<"'>@io'keo0 $500
8"'330ol.i &f>t;0 7%
J"'3o@Joe:cro6 I to 1
8Mmb<.->3600o1.i
a"""'aoool> Olii()63oli J"'::mneoo6@1o 3 to 1

Q:?03';'.)Cl3001, MM8 00::JOQ:?3Doo (Q0 b0M8Moo0 0MoG 0106000Mo 360 Q:?c-.;oG

Clo03Go01 Q:?..'l 0600M0Cl0000.
JM8:30600G 0d3G 00::ioe!?3Doo JMDQ:?oeo01) 400,000$ Q:?0 G0aM01M
8M0aooG 80Mt:J..'l 20%. 8oGo 808Q:?o60Ma 0deo3aoo 0MoG 80,000$; 808Q:?o60M[J
oaoo JO 60,000$; 80M00[)00 30,000$ (Q..'l 601:'_;(Q0 10,000$.
0. MM 0 MMo v6C!?0 o8MG 80M0 8 aoo, 01-v GvMG 80M0 8aooG oMv6 30 o8MG 4?
M08(Q[J60(Q GbM0<(3..'l(Q (M08(Q[J6 (Ql:'_;[JOO) ';'.j6(Q..'l od6aG
8M01bM36aoo, 01-v GvMG 50,000$-oG 063aGeoM[JO..'l? (Q:?03vo3001
0MoG 360 {QC'.;[))·
6. JM860600G "Stoney Mason" 00::iotQ3::JooG O::J0{Q()[J6G 6
0deo3000G 0M';'.)630G JM::J<(30(30::J60o 0MoG 6, 0806Q:?0 8M0ao0 ..'lMoG 120,000$.
M0 0MoG JM860600G 8('] 00 00 0deo3oo'b::i?
JM860600 G0J0GM 060M00vMoG (Q..'l8M600tJ::io0G 01030G
80c-.;0 'bo::ioClo. MM8 ::iG 00'bMQ:?oG 80M00000G JM6-
D'l3od0006Mo0G, oa08 8 0M::ioG a08 Q:?M8 8oG Q:?..'l
GaoG !5060noM::JOG ..'ll:'_;M0(3b30G G0Ge::i8000. 00'bM(QOG
0630GeoG00G 0deo3aooo 20%-001 (Q0 0806{!?0 8M0000G 8..'lMtJOG 'bM(Q0
2-C!?06 3%-8Q:?::J· 0 080C!? 30 ooo 0M 0MoG M0 a'l3Ddeo ad6::io0
JM::J<(30(30::J60'b::i. 8M()[)O..'l 0deo3000106?
JMMdMM0000G Queen Anne's Lace-G JM::JQ:?O@.>oG ..'>Mou
oa8C!?::J8o G0boG:

9 j % nClf'l01QJ(JMO f'l0c::'OC,il(30QOO $2,500,000

12%% 8Qf'lM01:QO oClM01::JJ(JMO M0c::'OC,0(30QOO 1,500,000
10114% 3t'iio3oc::io0ofiioo()c::in .:idGnooo 1,000,000
1
14 12% 3::Jdl>nc::iooo l,000,000
$6,000,000

01() JM860600G 8n 00 00 6Mn 8 ::i6eaooG Q:?..'l 00Q:?0G0b0Q:?o<'>oG 80Q:?0b-

Q:?..'l8Q:?::J ..'lMoG 1.5 $ Q:?..'l JM[J{Q00o ..'lMoG M..'l od6::io0
Q:?..'>'130M30G JM::J'IJ0(30::J6@.>o?
JM860600G "Tic-Tac Homes" 0d3G d::J8Q:?[J80 G0boG M01bo 006-
(001000000):

20XI 20X2 20X3 20X4

$ 214 $ 93 $ 42 $ 38
1,213 1,569 l,846 2,562
8ofu300o 2,102 2,893 3,678 4,261
naoGll?" 'B"dlio<"'>oo";Jc:?O 0d@lo3o00 2.219 2,346 2,692
0;!003300 $5,748 $6,90! $7 954 $9,553
$1,131 $1,578 $1,848 $2,968
2>"Ga0';Jc::"' 33jGoc:>o0° 500 650 750 750
3Md:Jc:>3"!3?""6o Bo8J3?ofo<"'>o fobni::;n 656 861 1,289 1,743
(l,MdJ!'.;'30J3?0"6o 500 800 800 800
fi3J';Jc:?0°1"in3o "JG°" 200 200 200 200
o""1fotinc:ooJc:>o a"'&i°" 2,761 2,812 3,067 3,092
a"'c::"'"5n ll?"
\,,:,.)Q(jOM J0do@J"c:'o $9,553

171
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dotl1om0CQO dMMOc:::>:J8:JOO?
008-oli M:JGd(J0c:::ioJoli CQ:JJ:J80:JMn 20X3 .

$ J,000,000 $ 4,000,000
5,000,000 2,000,000
7,000,000 ll1" 2,000,000
17,000,000 12,000,000
4,000,000
2,000,000
4,ooo,ooo
8mc:;>oo6n ll1"
$30,000,000 t;.,,.,,JGOM $30,000,000

.,,(JCl-oli Jro<iiJ°"""(.lOOli ll!" 8rooaboli "63""'°C!o.

20X2 31 ll!oJaao<'inl> 8ll!aro8""'orobom.

3"8"!.l13Dbo
JMDll1"8nm $16,000,000
4,000,000
$20,000,000

$12,000,000
2,200,000
1,400,000
.3<'iMGo68n 1,200,000 $16,800,000
$ 3,200,000
Clo8"'u.,,3"c::''bo 1,200,000
8m0a°" $ 2,000,000
"JG0oo'bo 240,000
R3D<Jc::>DOMn30 "JGODOnU $ 1,760,000
arooaoo l/l/X3 2,600,000
'.1':"80 $ 4,360,000
R3D<Jc::>a0Mn3 "dG0oo'b3 360,000
ll1"8"'"'3oc:;>o 3"(Jfu6nc:;>nODc::>o8Monoo 12/31/X3 $ 4,000,000

INDUSTRY
Jf'lO'aOGoa6<!!JO 20XI 20X2 20X3 NORMS
1. 8ooll!Ofu<'io JMD'l'Joono68n 250% 200% 225%
2. a'll"3"-8Dl>8 J"'O'l'Joooo68o 100% 90% 110%
3. 8MmbM36nb OM<J6:J" 5.0X 4.5X 6.0X
4. 8""'"oaboli OM<J63.,, 4.0X 3.0X 4.0X
5. 3Mdoc::>3"!.l10"6n J.,,;io@J"c::'ll1"°"6ll1ooo 35% 40% 33%
6. 8rooabol> 8""""" 39% 41% 40%
7. a"'oaooli 8""""" 17% 15% 15%
s. 15% 20% 20%
9. 0633l>8ooro'bo 15% 12% 12%
10. "d@Joaaooli OM<J63" 0.9X o.sx I.OX
11. :iM"'GDG@Joli ll1"'1'3""'30Li J"'.'.l'l'Jo00D68n 5.5X 4.5X 5.0X

o. Cl::i0qpli::im JM8.306ooli 8CQ 0 (T}80tl1::i(T}o0 obtl1oc:::iClo 0tl1li:JO(Jc:::'o 06'B(T}tl180oooli

0 08(T}tj:J6::ioom. fi08(T}m30c:::i::im m30c:::ili0fio6(T} li.3::ioo'BoJ(JMO J(T}:J'Booo::i68oli !Q(T}6::i::ioo CQ0
8080tl1m(Jc:::>:JO:JOO.
0 . 8o(Jmom::im, M(T}8::ic:::io J(T}:J'Booo::i68::ioo (J'BM(T} li0068:JM:Jli(T}0 mj3::i6m3oli CQ0 tl10 oj6::io0
mj3::i60 00CQ0bl:J3:J8oc:::i::io0 mom(T}:J()c:::' Cl::i8C!?:Jo lio8()0(300Clo:

172
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000-oli <"1::ili.3(JOe:;>nJnli Jf'lM.3f'lM0(300li li()Mli OtfOCQf'lli 500,000$ 80<"10 0::ioo 01j3::i60

Jf'l8.306ooli 0 06, 90 0 0CQ0bCQ001.
000-oli M:Jli.3(JOe:;>oJoli Jf'lM.3f'lM0(300li li()<"1li 01j3::i6 1 Mf'l 0f'lM(3 CQOCQ li0CQ0
Jf'l8.30600Li, (l,08f'lnlitinCQf'l01 8olio Li0006,Jf'l 3::Jdli::ie:;i::ioo 10 oe:;io060 Lio80093oli 30CQ001
808CQ060<"1::i 14%-0060 (l,060J3:J01001j
Jf'l8.306008 008f'lli(30 CQ0800::J00010 100,000 0j(300 CQ0 :JM010 0j(300 OtJOCQ::J00 80$.
Jf'l8.30600 01j3::i6 001030'bf'lo01 50,000 CQ0800::ioo01 0j(300Li 08 930Lioo.

808CQ060<"1::i Jf'l::J9J0(30:J60n = 800$/500$ = 1.60.

700$/500$= 1.40. 808CQ060<"1::i 0j003::ioo 8(30MCQ::J00 CQ0 0<"1 0<"1oli (33e:;ioe:;i::io0 808CQ060<"1::i
30e:;>CQ::JO(Je:;>::JO::J000.
900$/600$= 1.50. f'lM03:J 808CQ060<"1::i 0j003::ioo CQ0 808CQ060<"1::i 30e:;>CQ::JO(Je:;>::JO::JOO
o'bMCQ::J00 0803::i lioCQOCQ001.
800$/500$=1.60. 0<"1(3 8n8CQnfo<"1::J 0j003::ioo (!?0 0<"1(3 808CQ060<"1a 30e:;>(!?::JO(Je:;>::JO:JOn 0<"1
O::J(33e:;'Oe:;>0.
760$/540$= 1.41. 808CQ060<"1a 0j003aoo 8(3nMCQ::J00 CQ0 8n8CQofo<"1:J 30e:;>CQ::JO(Je:;>::J00
o'bMCQ::J00 0803::i linCQOCQ001.

20Xl 20X2 20X3

8o8!Qo6.)(iio JM.'.J'ZJOlJoo6&o 1.19 1.25 1.20
8tJ'>3<>-0;Jb&JM.'.J'ZJ0(30.'.J6@>n 0.43 0.46 0.40
C!?::JOn&. &<xnbM360oob <>8Mc;ooob li<>Cl. 18 22 27
of;\·::fo<> 8.0 7.5 5.5
3<>c:.;iolilli<>J()m.)(ii 1.38 1.40 1.61

8mc:.;io.>6 'bo 0.33 0.32 0.32

bi>.'.JMmM 8MQOOnb 0.200 0.163 0.132
8M0.'.Joob 8.:,MtJ<> 0.075 0.047 0.026
8mc:.;io.:,6o <>d&o3[JOob 0M(J63<> 2.80 2.76 2.24
oo8Mb.:i3<>c:.;io 1>d@>o3oo'bo 0.21 0.13 0.06

jf'l8.306ooli 8ftl8 0 ::io006f'lo0 o::i8GnMCQ0 .3::i<"1nf'lCQnli 010600<"10CQ. 8bMe:;>MCQ 50,000$ C!?0::i8000

o<>(J60ooe:;iao:Je:;> 8M 0 ::J00li, JM8.30600 (J6CQ0 ob(!?OCQJli lif'le:;'OCQ(JM (!?030CQJ6(!?JOli. 30e:;iuw-
O(Je:;'::JO::JOO o'bMCQ::J00 C!?000e:;io 0060J3Jmom, 01()8(30 30e:;i(!?JO(Je:;>JO::J00li Li00()0e:;>M
(i060J3J010 J3e::'03 o::ili0008olio0 8M(3J8(Je:;i .3oMMO::J00106. 80cY10c,::iooli OM(J630 oli::i3 8(30M(!?-
J00, <"10CQc,06 0li0b(Je:;io0 80<"10 0aooli 'b<"1CQ0. 30e:;>(!?::JO()e:;>JOJOnli CQ0 80<"10 0::iooli 'b<"1(!?08, Li00j-
(30M J0.3000e:;ioli 8(30M::JCQ 'b<"1(!?0lim06 CQ0J0300<"1::ioo01, 0 060.30Mf'l00 801e:;io060
30e:;>CQ::JO(Je:;>JO::JOoli (!?0 li0J(J010Mo J0.3o00e:;ioli (!?08MJO(!?JO(Je:;'::JOOl.i Jf>1J9J0(30::J60oli 'bcY1CQ0,
M0(3 0Moli CQM6J.
8Mb(!?0 8o8CQofoMJ (!!0 8tp30-@J::ili0oli Jf'l::J9J0(30::J60oli MtJ[J30, 80 0cY108 808(!!060cY10 JMJ-
9J0(30[J6@Jo 0M 0cY1oli d0e:;io06 CQ080J80tJM9JOe:;'JO::Je:;>o. 01()8(30 lio0()0(300 08 JM[J9J0-
(30J60000106 G(JCQ0CQ 0<"1 0 08010tJ(JMJ00 i!!JOo@JMM(Je:;>o 8f'l01bf'l36::iooli CQ0 80cY10 0 oooli
'bcY1CQoli 'Bf'l6'b::i, M0(3 8Mo8Moli 0j@Jo3::iooli 08 8(Jbe:;i::iooli e:;ioJ30Q?(JMf'looli CQM6oli
<l::i8GocY1000Li. 06'iliooo010\!! <lo8(30M(!!0 0Li::i3J li0ocY101M 8M 0 000 (!!0 0806\!!0 8f'l0oooli 80<'1t10.
80010 (!!08MJO(!![)O(Je:;'J00 (i3ofl306ooli, Mf'l8 JM8.306008 OJ08(30M0 2003 o;:ie:;ili.
i!!ooo@JMM(Je:;>n 8M01bM36oooli up 80cY10 0 oooG 'b<'1CQ08 008f'loo300 0j@Jo3000G 0<'1()630G
<lo8Go<'1 000, 8M8 0::ioo06Moob o::i8 8 0<'10008 008Moo300 0j@Jo3000G 8M8 00 0006MooG JP1::J'Bo-
8o::i6@JoG 8tioGoofi1o Clo8Gofi1000.

173
 3.

o"tJ0!:!?306o = 1,000,000$

= (1 - li.:io<Yl01l'YJ a(YJ 00 6oli 8.:i<Yltp)( 0.:ition:? 3o6o)

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175
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DIRECTION
JM8:3v6ool> "'Aldine 20X2 20Xl otl.:>t<'.f'l:Joo 00af'ltiD6Do.:>
Manufacturing" !.ll" 8ol>o $178 $175 + $ 3
(>m>l>ao'iln) 678 740 $ 62
8v1'i<> 0aon l»o<>'bf'iM '(Jvl>nm .:>6
1,329 l,235 + 94
&n6vGlfo1'i b>M:Ji::JOn 21 17 + 4
· 35 + 6
8n8!.Jln6.>1'i:J "d803000 $2,241 $2,196 NIA
'l3odl>n1'iaovc:;>o <>d<§n3000
U<>blJnGo 1,596 1,538 NIA
v8M1'i8n'bv(30v _mm (791) NIA
&806!.Jl" <>d8n3noo $ 739 $747 8
063:il>8nonnon 65 + 65
Gb3<> 0 1'idnc::>3>!.Jln>6n <>d803:ion 205 _w
8mc-:>nv6n <>d<§n3:ion $3,250 . $3,148

1.11.) (;.).)d(30f'l

l>ol>bo0n!.ll"
a"!.Jl"L><>b!.JlDc::>O 3Ddl>nc::>n0n $448 $356 + 92
J1'i:J!.Jl08r:i1'ivc-:>n 3"c-:'!.Jl:JOVc:;>DOQOO 148 136 + 12
>Jvavc-:>of'iaovc-:>o 8"!.Jl"G.:.b<>!.Jlnoo 36 127 91
Gb3v !.Jl1> 01'iM3nc-:>n 3"c-:'!.Jl:JOVc:;>DOQOo _ill 164 + 27
808!.Jlnfof'ia 3"c::'!.JlDOVc-:>:JO(JOO $ 823 $ 783 NIA
01'idnc-:>3"!.Jl°"6o 3"c-:'!.Jl:JOVc::>Do" 631 627 + 4
l>»don"' J<>:ln8>c-:>n
fl3n-vc::>no1'io30 <>dGnv, $ l 6r<J8n6>c-:>nm 421 421
361 361
8M0:JOv 1,014 + 58
l>Mj(3nM Jv:ln8>c:;>o $1,796 $1,738 NIA
l>vc::> !.Jl"
.l><><>donM J<>3o8<>c-:>n $3,250 $3,148 $263 $263

CJa60CJ3fo: NIA= .)MM fl3a6 '(JMJ(JGOM[JO<>U om 3"J[JO'>[JOO'> <>rl

,:,6 ,,08061."!?" <>rl&o 3aooG" Jrr>8.3rr>6a6<!!ia<'>'ba.

180
Jro8:Jo6nnb "Aldine 'bt<lCQo, 3ov6oooc:;iaonc:;io a"'8D"" $ 58
Manufacturing" ,,booo'b01" Cln8ent<l::JOo, o8o6(Qo od@)o3,')0o 8
'B"'6CQnonb 068ot<ln<l3nonb
08""""'non CQ> 8,a"'8::J6aoo a3a8 ot<lnoo, CQ::JOn@>"'""(Jc:;in CQ,,3,c:;ioo60oo 62 bi<iCQ>, 8ot<lo3non $ 94
2XO 1 31 8ot<l@)nCQo6
'bt<lCQo, liooo6J"' u0bbnon 92 bt<lCQo, Sn6oboot<l 3>b:.J(Jc:;>n bot<l'.JCaon 4
2X02 31 8ot<l@>o8CQ.'l
'bMCQO, JM::JCQO@)MM(Jt::;>O 3"t::;'(Q::JO()C:>Doaoo 12 'bt<lCQ>, onfou!Jot<l 3>CQ>l>0b"fl?::JOn 6
(0010G3oi'ln)
'bt<lCQo, bb30 CQ>6ot<loebaon 27 'bMCQ>, 3t<ld::Jt::;>3"!.!?°"6n o6s;Jl>@>nGnnon 65
'bMCQO, 3(<id3c:;i3>CQ006n 4 O::J8(3nMQOO, CQ>3MM3nc:;in 3>CQ>UoboCQ::JOn 91
6"c;tl.l!" !.!?" 8nuo __ 3
$263

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States of America, Lucille. (Laibility - Asset - 0d@lo30,
Sourse - Uses - 008MtJ::J6000).

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OtJ.>MM:JOU <Q0 308Mt1::J6000u 2X02 31 80fii@l0Um3ou.

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181
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fl306 8.:iM8031>CQ 31>(Jd80001 0806tJ<1> G3C!'OC!'[)Oi>U 0.:i(J6i>OnC!'[]O[]C!' 8M 0[]o<>Clo !Qi> 8ou
JM8.3M6o68nou 3G3C!'om fl3 06u '(3M6!QDoou .:i60.:i(y)oCJClo - 0806!.'!?" aM 00 o.:iu, MM 0MMG '(3M6tJ<noou
OtJ<>MMu !Qi> 'B(JC!'i>!Q ti<o 3o!.'!?o6CQDou, MM()MMG 'BM6u:woou 01>8Mt1n6no.:iu.
Otji>Mf'l: f78o6f:Ri> 8f'l(3()01> $201
01>8f'lJC!'[JO(Jr:;'O: ?J'Jr:::'"fRO fROJOfR(J6fR(JOO 143
(0806CQ1>) 01:1.:iMf'l: 'bMQ?<>, 0 1>'J61>f7nc:::>aoac:::>n 8f'l 0 ao.:i $ 58

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8MdMi>MOi>'b[J.

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fo'bt'iill?o = <'>dtf!>o3aoou + .3at'iioC"lll?'1lo 1)

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cnoduoM[)O(JC!'O 1>d803ooob 6.:i'bM!Qo = -8$+112$=104
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199
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SGR = 0.70(0.04)(1.8) = 9.I 7%

0.60 - [0.70(0.04)(1.80)]
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202
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SGR = [(100 - 3.93)(1.80)(1.6667) ][-1-]- l = 9.17%

1 - [(0.04)(1.80)(1.6667)) 300

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SGR =[ (100 - 4)(2.00)(1.8182) ][-1-]- l = 42.22 %

1 - [(0.05)(2.00)(1.8182)] 300

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208
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50,000 0360!.io 80,000
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01d<§01800Mo 20X1 8.:iM@Jo 20X2 $200,000

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llWJo8o0Mo 2ox1 400,000 8MGo 20X2 250,000
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209
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Bhandari, Shyan B. "Pedagogical Issues Concerning
Analysis of the Cash Flow Statement." Journal of
Financial Education 29 (Spring 2003), 1-11.
Chambers, John C., Satinder K. Mullick, and Donald D.
Smith. "How to Choose the Right Forecasting Technique."
Harvard Business Review 49 (July-August 1971),45-74.
Gahlon, James M., and Robert L. Vigeland. "An
Introduction to Corporate Cash Flow Statements." AA!!
Journal 11 (January 1989), 14-18.
Gup, Benton E., William D. Samson, Michael T. Dugan,
Myung J. Kim, and Thawatchai Jittrapanun. "An
Analysis of Patterns from the Statement of Cash Flows."
Financial Practice and Education 3 (Fall 1993), 73-79.
Helfert, Erich A. Techniques ofFinancial Analysis, 11th ed.
New York, NY: McGraw-Hill/Irwin, 2004.
Higgins, Robert C. "How Much Growth Can a Firm
Afford?" Financial Management 6 (Fall 1977), 7-16.
- - . "Sustainable Growth under Inflation." Financial
Management 10 (Autumn 1981), 36-40.
- - . Analysis for Financial Management, 7th ed. New
York, NY: McGraw-Hill/Irwin, 2004.
Moore, Marty. "Cash Flow Management in a Leveraged
Environment." Strategic Finance (January 2002), 31-33.
Numberg, Hugo. "Inconsistencies and Ambiguities in Cash
Flow Statements under FASB Statement No. 95."
Accounting Horizons 7 (June 1993), 60-75.
Plewa, Franklin J., and G. Thomas Friedlob. "New Ways
to Analyze Cash Flows." National Public Accountant 47
(February/March 2002), 25-30, 43.
Statement of Cash Flows: Understanding and Implementing
FASB Statement No. 95. Ernst & Whinney, January 1988.
Van Horne, James C. "Sustainable Growth Modeling."
Journal of Corporate Finance I (Winter 1988), 19-25.
Part III of the text's web site, Wachowicz's Web World,
contains links to many finance web sites and online
articles related to topics covered in this chapter.

214
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230

Gamble, Richard FL "The Long and Short of Debt."
Business Finance 8 (October 2002), 25-28.
Gilmer, R. H., Jr. "The Optimal Level of Liquid Assets:
An Empirical Test." Financial Management 14 (Winter
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Hawawini, Gabriel, Claude Viallet, and Ashok Vora.
"Industry Influence on Corporate Working Capital
Decisions.'' Sloan !vfanagement Review 27 (Summer
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Hill, Ned C., and William L. Sartoris. Short-Term Financial
Management, 3rd ed. Englewood Cliffs, NJ: Prentice
Hall, 1995.
Maness, Terry S., and John T. Zietlow. Short-Term
Financial Management, 2nd ed. Cincinnati, OH: South-
Western, 2002.
Morris, James R. "The Role of Cash Balances in Firm
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Analysis !8 (December 1983), 533-546.
Petty, J. William, and David F. Scott. "The Analysis of
8.
Corporate Liquidity." Journal of Economics and
Business 32 (Spring-Summer 1980), 206-218.
Sartoris, Willian L., and Ned C. Hill. "A Generalized Cash
Flow Approach to Short-Term Financial Decisions."
Journal of Finance 38 (May 1983), 349-360.
Van Horne, James C. "A Risk-Return Analysis of a Firm's
Working-Capital Position." Engineering Economist 14
(Winter 1969), 71-89.
Viscione, Jerry A. "How Long Should You Borrow Short
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20-24.
Walker, Ernest W. "Towards a Theory of Working Capital."
Engineering Economist 9 (January-February 1964),
21-35.
Part IV of the text's web site, Wachowicz's Web World,
contains links to many finance web sites and online
articles related to topics covered in this chapter.
231
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0b!.Qa6li 'li00 .., 3c:::a601.i a01JoCQ 3ao'lia !.Qi> ar18b80- '?30606!.i(JMO 8:J6afe:JMO. m(Ja 8 0, oMc:::C'l CQMMli
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8Ml.i0ba"1b:JO:JC:::O od6:JO.._, m(J JM8.306ool.i li.".>JM,')- 00CQ..,8J33mo '?3()6deoDooli 8dM6a 3()6!.Qaoo,
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c:::03m Mr<10 MM(3 JM8.306ooli 08 .3MMCQ(JdGooli CQ.".l li.3:Jeo0c:::oli@>aoo, 0 06li0J(JalM:Joom MMCQ:Jli..,G
8M8li0b(J"1:Jooli 60ooc:::0CQ, "1M8ac:::t.i0 8 01.i Jr<18.30600 li0d8a abao0 !.Qaoo@>P1M(JC:::O CQ.., 3..,c:::o06aoaooli
IJOCQoli. O:JCQOo..,CQ, 80"1Ja@>o60 oli CQ.., '?30606li(J"180 0b0c:::o .3Mc:::o@>oJoli CQ.".>6a"1330li.

264
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Clol:!?OC.0\:Q, 80101bM35oG Clo8t10Moo 3P1ol:!?o@JoG \:!?0150 080'bo, 01(]
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o0tJO(Q3000(Q05 0M C.0(Q00.'.f061000G 3610!3?0@>001 o0tJO(Q3000b
l:!?080@Jooo01 l:Q0fob061.'Ji;ooG. 61M 0 M6100 G0 31'iio1:Qo@J01 G@J061:Q061@JoooG l:!?00 3oG 1:Q050b061.'Ji;ooo?
'bMc.0061010 80010060 fi5(Q000 (Q0361ol:!?n@JoooG c.0cn061mMoooG OJl:QOC.013?,
8(J00Moom, 0801080005 1:Q080@Jooo01 05 0 0610ClooG (Q0 l:!?oo-
(Q080@Jooomn 8M8G0b(J61oon01. fi305 30610(J(QM001,
61M8 oG (Q050b0f.'i_'ji;oon c.08Mod3001000 (Q080@Jooo010 00tJO(Q3000G 61oG
OOl:QOC.01:Q00 fi305 3oc:;oo01 o8o5(Q0 8M8000005MooG Gb30 (Q050b0MS('.O 8noc:;oo0
(J08;:J(QM (Q05030Mc.nG 00 f1305 080G
8M 0 3005 00001 \:!?0 l:Q0 3(JCJ 30 001, 61M8 061 061GooMoG (Jo8ol:QM
1!!05030610 0.
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(Q080@JJ0001() 00618MoOM00 ( 1) 80tJOIQ3000G 00 'bM(Q001 (Q0 (2)
08Mc:;oooG :.JofiinMi:QoG 0 0'b611Qo01. 01(] 3M8:305ooG G036101Qo@JM G@J05-
1:Q061()000G \!?000 30 8Mo'boCQ0 3G 08 361ol!!o@J(J501Y1005o 8M8b8061 0-
08Mc;;oo0 8Mb(Q000 (J'ZJ61M 03005, 3ni:Q610
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o'-'\!?'-'3'-'CQ0008 008Mno30MG nb, 61M8 ()330 80b!:Q5o5
00(Q 0103n06mn 06 0061nCloonG 0 0CQ0b(Q0b0105 CQ0303Cln61oon01.
0<"'lfio3.:.6nb n8obm30G 61,..,.,3 d03'-'ez30GM01 3MJ(QO@Jo01 80tJOCQ30ooG
f1306 ()51!!0 30GMU?001 \!?080&000010 0 0t101:Q3000G
Clo8G(JO(JdOO(JC::,'n G03MOCQO@JM bt!J05(Q0MCJJOnG 00801 :3M01(Q(Jd800'bo
<:!2080@>000010 801mb01360, ,:,801c:;oooG G.:>Cl(J0e::•01 :.i 061nM(Qnb
CQ0 o530G@Jooo1i1000'bo (Q<>3(]Cl3001,
61018 3018:305noG 061010 :361MCQ(JM)o OtJOCQ000 10$-013?, 8$ 01'1nG b0M'.l'(;O
801:Q0G0b0<Roo08Q?o, 8010003G 0Go30 b03P1o<:Qo@J01 0<0:30M@J0805&oG b0M_'Ji;OOb. 301800-
500 08.'Ji;OM"!J,? .:>M 8(JCl0016G .:i8o@J018 0.:itio1Q3060G 00'b1i1CQ0
8nne'.?oob 8(JCQ803n Q?.:>5.:ib.:iM.'Ji;OonG 00'b<'1CQnG 00Mooo. 0Gom 3n0101i100000, 8010000
(!?080@>00001 :3M01CQ(JdGonG Clo0G<005G bb300160G 00G.:>tJOIQ
cn0GG0 CQ'-' CQ080@Joon010 00M801000Gm30G G0.'.foM01
001P10G, 05 0 10$ - 8$ 2$.
08ti080CQ, 31i10Q?n@Jn01 ()0tJO(Q306nm .:>Mob 2,4 !:!?" 0M 0006005000 .:i8
'bMCQoG @>06!:!?06(300. 3018:3.)60,)8 3MOCQn@JnG 000080 00b0CQ01b
008MnG303b .:i8M('.?J6nG MMm3n06 :301i1001CQG
0fii 010 3005010
C."IQ'-'bQ?nb 30CQnG b03ii10<:.Qn@J01 G@Jei5CQ0M@JOonG 008G•:::JO(Jd000 li1018
0 080100303G 25%-006 'bMCQ0G 00t101Q3ooon 3 600,000$-001 'bfilCQ.:i .:>MoG
60,000 (.QC>8ei<5)oon01n 01(] f1306 Q?03()030001, MM8 '(pGn li1fiooei
00030. CQC>3(]03001, fil018 J018.3.:i600G 8ooM (Qe>80@Joon01n 8oc:;ooob
0MoG 20% 0 .:i!:!?0G0bei<Qo60G (plQ0b!:Q08CQO·
08 of.icn01fil80on0G 113060 80.3u03G 0Mf103060G 0 0Jo0100081:QO Q?080@Jooomo 0 0t10CQ30-
oo(Q06 CQ080t!Jooo01 801 0 06.:ib (Q0 00 0630G@JooofiloooG
Of'1MoG. 0630G&non0 00M801no0100
0 3006 11 30 s IQ0 3';'Jo 3001, fil018 8018b8eiM::r
'l.)0bnb 0 0CQ0bu:0G oli1010 m30G 0 e>tJOIQ30onb 600,000$-001
()0'bM(Q001 CQ0 6-j?,::JM
061()63001 ( 12 0130 8ne'.?oonb .3JMof'11QnG 06(] 2
013o'bo) (Q.:>80<5)000010 od5o6.:i 600,000$ I 6 = 100,000$. 08 (QOOO-
1Q0J03ClnM06001, 3f'18.305neiG (Jb!3?000 Clob0008nbo !3?080&000010
c,0c:;oo0. 11306b 801:JO(Q306Cln 01nmMO';'Jr:'{O 1$-nb 0,80$ b0M-
8010u:oo6G b0Mj?,OOb. O[J(Q0801Q CQ080@Joon01n n630G@JnG00 (Q::JOO@JMM(JC.::'
0tiioG 0.80 X 100,000$ = 80,000$. 088r06.:ieo8n01,11306 ().:>3030010101

265
 4.

3"HO!l?3300li 8M83300.)6M&. =
ei>80CQ3D6ou 8MQ33"l x(1!1.)(!"8o6oo>
a"'aan6oo6"'6ou 2$ X 60,000 = 120,000$
oa'Bouaoo
J"'83o6na6ou UOJMDCQn<!I>"' 1!(1>81><!lJ36ncno =
l>6o6CQOM6DOol> (1!1.)(!"836ocno I
600,000$ / 6 = 100,000$
1!(1>81>836ocn 0633l.i<!lJ0001i = !Q1>61ib.:ill1:i<;360
JMMl!((JJ(30ll'b3 I a.:ili.:>tjOl!(O ;:zplio} x (l!(.:>8.:i<!lJ360010
0.80 x 100,000$ =80,000$
1!1"8"8360010633li8rioo36'b3 8M 03 o" l!l"o3331111ial!13 =
X
0,20$ x 80,000$ = 16,000$

10.1 61iR306noo M08!Q:Jfo!Q0(3 8M8:J00 !Ql>Bo&noom 8"80!Q31>'lJO, 06()

2$ X 60,000 = 120,000$, oS:oMO:JOG 0630G&0GonooG
8M8:JOoG, 06() 0,20 X 80,000$ = 16,000$, JM8.30600Gm30G ()J:Jffi:JUO od6:JOI>
Clo08G(JO(JdMG 8oGo Ul>JM:J!QO&M G&06!Q1>M8:Joo. JM8.30600G 8Mo-
(31>3G JM:J!Qn&oG 8"!!?"3"C!?:J01>G G0608 8M8:JO" !Q1>80&noom 8"801Q3:J-
o'bn oM 8M8:JOl>U 063:JG&oGooG
8"80!Q3:JOOU m(J8(3o, M0(3 .an& JM:J!QO&oG MOUJU
30Qnom, R3n6 8om 3003m JM8.30600G MoGJG, Mo(3 1ioG0bno0 JM8.30600G
6oJl>!Q:JOOU 8:JM8:JM00d0. MOUJOU oGnmo ao'bM!Qll a08Mob0&no0 0U:J3D (J08:J!QM
!Q1>80&noom !!?"6"J"M8:JoClo, R30 6 30G0(Jol'lnom.

Jt'il[J13?08oll .3atiloM!Qo. JM:JC!?o&oG .3oMMO:JoClo 8onmomno0 !QMM, MM!Q:JU"G

CJ6CQo
2,0(QOObO(QMU Jl'ia1,11n6n01
Ol>M:J!Q806:JOI> JM:J!QO&o !!?" ffi(J :JU oMU:JOMoG, 80G 01>M:J!Q806:JOI> 08
.3:JMOM!QoG 1i6 0 01'loCloG 8"C!?"b!QoG Cln8mb3030Clo. · oG:J
!Q1>3(JCl30m, MM8 JM8.30600 80!QOU .3MM!Q(JDG00G ,,2/10, 6:J8M 30" .3oMMOom. 8:JM-
8o6o ,,2/10" 60Cl603G, MM8 m(J 1i6a0t'i10Clo od6000 10 !QQOU
1i6a0t'i10Cl-'ll0d&(Jl'i10G oc.l'l!Q 0:J6oG !QQO!Qo6, 00t'il:J!!?oo6000 2% &ol'l-
8060 ,,6:J&M 30" 8o(JmomnoG 080'bn, l'i1M8 ffi(J c.t'il 308MOtJ:J600G 08
()61!?" o8MG 30 C!?QoG c.Gnm
3om0t'ilno0Clo, Jr<io>QoeoG d[JM001(QO O:Jll!Q8:J6G 30 C!?Q:JO. 8o(Jb:J!Q030!Q 080G0, MM8 o6!Q(J08Mo-
!Ql>M8:JOnG 8Me>!Q0(30:JOn bCloMe>!Q JC>M6obMO:J6 JM:J!Qn&oG .3ot'i1MO:JOU, JM:J!QO&oG .3ol'lo-
M!QO 0MOO nt'ilmo-nt'ilmo !QC>b80l'lnoom0G JM8.30600G 30'be>M!QMO
.3MM!Q(JD(3oe>'b:J 8M01bM360. MM()MM(3 (JJ3:J 1>Q360Cl6:Jm, c.l'lGnoMoG JM8.31'lM8oGo !QC.80&000010
()080!Q3:JOOU 8M88:JOn1>6Mo0G0 !QC> !QC.80&00001 063:JG&0Go1> 'b:J
8M 0:J00U CIMt'iloG.
!Qll3()Cl30m, l'i1M8 JMB.306008, R3:J6 oofo ,,6:J8M
30" JM:J!QO&oG .3ot'i1M00 .. 6:J8M 60" -om 06() !Ql>JM:J!Q08:JOOO .3nl'i1oM!QO 80 'bot'il!QC> 30-!QC.6 60 C!?Q:J8C!?:J·
08001 aoQnooG .3ol'loM!QO
a0o'b0t'il!Q1> :JMmo m301Q06 MM 01308U?:J· (J'ljt'ilM !QC>Jt'il:JQ;?08:JOOO .3:Jt'ilOM!Q80 a08Mo-
0300 360,000$-oG a0801Q3:Joo !QC> ob1Qo06 MM m30Clo.
C!?080&ooomo Cl:JC!?o:JOe> Ml'lo . 00l'l-
8M0U?on6G ()080!Q3:JOOU 6-ji;:JM
ot'i1()63om, 8"801Q3:Jom06 !QC>80&noomo
d:JC>!Q():J6G 360,000$ / 6 = 60,000$. "a !QC.8.'.>@J:Joomo
JM8.30600G 8ont'il 0630G@>n(300 O:J!Q8:JO.'.> 8.'.>01m.'.>6 !QC>J.'.13-
b"l'i1'.)i;nooG006. R30 6G 0G.'.>Mob (8$/10$) x (60,000$) = 48,000$.
6.'.> 'bt'il!QOU 8:JMM:J 6000C'.!:'o
80Q:JOOm. 8M8b8.'.>-
080MnQ:JO" &o8.3om,
t'il"G 003030 !QM6:JG. G"o8oGo 2,4 0 0tinQ?3om,
!QM6:J 12-ji;:JM OM(J63001 !:>t'iloG 2,400,000$ / 12 =

266
 CQ..">8..">&000010 ()..">ti0CQ30ooh 8m83000.:,6mo.:, =(D<'lmo'Vc:;> Jfiimo;:'VdGo.:,'bo 'bcwfii(Jt:;>O 8m300.:,) X
8M8&aooC>6Moou OQtQ"<'>Do" (CQ<>8...,8ooom ofiimo(Jc:;>Ooo)
.:.b..">t:;>O (Q..">8..">&000010
2$ X 36,000 nfi'imo(Jc:;>'bo = 72,000$
J"'83C>6oou UC>J<'>otQn8"' CQ<>3..">c:;>o..,600000 = (.:.bC>t:;>O ()ilti0CQ3000U()ll6 8oc;oo(Jc:;>O u.:,6\30oc:;>o) I
3o<'ioM(QOU (.:,b.:,c:;>o JMa;>oo&mM(Jc:;>o o;:031>c:;>o.:.63ooh 061()63.:.)
360,000$ / 6 = 60,000$ .
...,bllc:;> =
31ilii>1JOQ;?O <(31>00) X
a;>ooo&Mfii(Jc:;>o a;>"a...,c:;>o06oooon)
0.80 x 60,000$ = 48,000$
a;>oon8mfii(Jc:;>n
Cl303c:;>.:i8a;>3 =(6c:;>o(JMO JMOa;>o@Jnm) /
(d3oc:;>o CQ"3.:ic:;>n1>6noob 061()63.:i)
2,400,000$ / 12 = 200,000$
a;>noo@JmM(Jc:;>n Cl1"3"c:;>o.:i6oooli
.:.b1ic:;>o (Qm6o b.:,olJob 0..">lJOCQ3:Jonb = (oc:;>O(JMO JM:J(QO@Jom) I
e,.:,a.,3.:.c:;>ob606noo01 (1ib1>c:;>n CQ:JOn@Jmfii(Jc:;>o Cl1"3"c:;>n.;6oooli 061()63.;)
2,400,000$ / 6 = 400,000$
b.:>6lJob
063ob@Jooooonb fo 'bti'i(Qn =400,000$ - 200,000$ =200,000$
801c:;>n.:,60 063nl>@Jooonoob 6.:, 'bP11Qo
(Q:JOO@JMM(Jt:;> 1Qo3c:;>o.:.600.:,Clo = 48,000$ + 200,000$ =248,000$
8mcnbm36oc:;>n 8M3001i 1QC>O:J&3(i}.:,31QD = (<>c:;>@j:J(i}fo@Jn'Jc:;>n X (3cnc:;>o.:,6n
063nb@Jnon...,'bn Cl1"8"®oon01 1Q..">3<>c:;>n06oo»Cln)
0,20$ x 248,000$ = 49,600$

200,000$ . .:,b.:ic:::o !:f?M5::J noc:::oo.:i!:f?oo or1()53001 .:ir1olJ 2,400,000$ I 6 = 400,000$ . .:i8 0 3.:ir1.:i!:f?
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 17 61 Asendorf Tin Shop FF2
76 22 Austen Wes TV Service EE2
55 41 Backers Service Station HH2
57 12 Barber Furniture Co Inc. CCI
50 13 Beasleys Automotive FF4
53 11 Beaumont & Hunt, Inc. 881
Rating Classification (Based on Net Worth C-Omposite Credit Appraisal 59 41 Bedlans Sporting Goods DC3
from Interim or Fiscal Balance Sheet) Higfl Good Fair limited
SA $50.000,000 and over 1 1 3 4 51 91 Servin Distrg Inc of Beatrice
4A 10,000,000 lo 49.999,999 51 91 Servin Distributing Inc. CC2
JA 1,000,000 to 9.999,999
1A 750.000 to 999.999 15 21 Blackwell Trenching Service DD2
IA 500,000 to· 749,999 15 21 Boeckner Brothers Inc. DC2
BA 300,000 lo 499,999
BB 100.000 lo 199,999 54 14 Boogaarts Fairbury Inc.
CB 125,000 lo 199,999
cc 75,000 to 124,999
DC 50,000 to 74,999
DD 35.000 to 49,999
E£ 10,000 to 34,999
ff 10,000 to 19,999
GG 5,000 to 9,!199
HH up to 4,!199

Rating Classification (Based on C-Omposite Credit Appraisal

Number of Employees) Good fair Limrted
1 3 4
2 3

Key to the D&B PAYDEX• Score

PAYIJEX PAYMENT
100 Mlicipat•
90 Disooont
80 Prompt
70 15 Dars Bej'1111d Terms
60 22 Days Berond Terms
50 30 Oars Berond Terms
40 60 Dais Beyond Terms
30 90 Oars Berond Terms
20 120 Days Beyond Terms
UN Unavailable

Key to Employee Range

ER! 1,000 or more
ER2 500-999
ER3 100-499
ER4 50-99
ER5 20-49
ER6 10-19
ER7 5-9
ERB 1-4
ERN

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296
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297
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have taken against secured lenders, see Monroe R. Lazerc, "Swinging Swindles
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,).1/10, 60801/30 ( 1/99)(365/20) = 18.4%

2/10, 60801/30 (2/98)(365/20) = 37.2%
3/10, 60801/30 (3/97)(365/20) = 56.4%
10/30, 60801/60 ( 10/90)(365/30) = 135.2%
D· 3/10, 60801/60 (3/97)(365/50) = 22.6%
2/10, 60801/90 (2/98)(365/80) = 9.3%

327
 4.

3/ 1o, (3/97)(365/80) = 14.1%

5/1 o, (5/95)(365/90) = 21.3%
2. C>MOU d:J8!.Q:J()O:
UC>3C>jMM
(3/97)(365/20) = 56.44%

(5,000,000$X 0.15)/(4,400,000$) = 17.05%

(300,000$/4,400,000$) x 2 = 13.64%
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(106,000$ x 0.13)/(106,000$ x 0.90) = 14.4%
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6 0130C>60 $36, 132
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6 0130060 38,898$
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328
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articles related to topics covered in this chapter.
329
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lQ<>()o30G PlMo 00GCQP180: .:i8PlbGo6ocn .:i8P1(3.:>fo .:i8 o8<(3P1M8.:ioooli
!Q.:>03oot1CQ<>cn 8oocnocnooo6.:icn, MP18 IQ<>6<>CQc,0t'1ob
063P1obob <(3<>bcn.:i6 OMCTJ<>lQ 60,000$, Q:?.::>80®ooom CQ.:>8P160<>tJDOob <(J<>bo
2000$.
!:Q0b<>!:Q 00t'1oli 8o8Q:?o6.:it'1o .::>Mob .:il"1.:i 8000$, .:ifii.:>83CQ
3000$.

345
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.:.8 .:ib.:i!:!!?o 6).:. .:.(Y)oG a::iG00080Go 6.:>J<>tQ:JOo 08

fb6003!:!!?000G 08M(3.:>60Gm30G?

2 3 4
L $100,000 $100,000 $100,000 $100,000
2. o8"il<\<§o°l»(3o.> 96,000 153,600 92,160 55,296
3. 34 560 34,560 17,280 _ _o
4. 6<>'bfiiC!?n
bo'bo (2)- bo'bo (3) 61,440 Il9,040 74,880 55,296
5. 8M<>n6ol>
bo'bo (1)-bo'bo (4) 38,560 (19,040) 25,120 44,704
6.
bo'bo(5)X(40%) 15 424 (7,616)
7· 8M<>n6ol> <ln8!.!ID8
bo'bo (5) - bo'bo (6) 23,136 (11,424) 15,072 26,822

2 3 4
8.
bo'bo (7) + bo'bo (4) o6
bo'bo (1)-bo'bo (6) 84,576 107,616 89,952 82,118
9.
X(1--0.40) 0 0 0 0
IO.
b,,'bo (8) + bo'bo (9) $ 84,576 $107,616 $ 89,952 $ 82,l 18

5 6 7 8
I. !.l/ofu'bM<>n6o $100,000 $100,000 $100,000 $100,000
2. 55,296 27,648 0 0
3. 0 0 __o_ o
4.
bo'bo (2)-bo'bo (3) 55,296 27,648 0 0
5. at"l()DOOU
bo'bo (1)- bo'bo (4)) 44,704 72,352 100,000 100,000
6. 0o!.!lol>obo!.l/DOO
bo'bo (5) X (40%) 17,882 28,941
7. a"' 0nool> !.!loona3r<>ol> <lnB!.!lna
bo'bo (5) - bo'bo (6) 26,822 43,411 60,000 60,000
8.
bo'bo (7) + bo'bo (4) 06
bo'bo (1)- bo'bo (6) 82,118 71,059 60,000 60,000
9.
x (1 - 0.40) 0 0 0 24,000
I0. 08061.l/O 60J0!.!10
bo 'bo (8) + bo 'bo (9) $ 82,118 $ 71,059 $ 60,000 $ 84,000

G.:.fitioGo 00G03.:ie!!?o
- d30!:!!?0 tQ<>6<>tQ 0 <>M:JOOU 3<>tJOtQ3<> - tQ<>O:J 0 36)0G tQ.:>60 'tJcry 0o
480,000$ - 70,000$ - (0.40)(86,400$ - 70,000$) =403,440$

346
 b0c;>tQO b0J0(Q[JOO:

2 3 4
!. ot<1"'ao 'lia l!/060 i.,, 00 00 $150,000 $150,000 $150,000 $150,000
2. 'lJMl!/O(l?O :Jdl>3t::,'M0®0(30(Jf>10 (J?OOObOMji:DOO 6,000 6,000 6,000 6,000
3. 0801t<i®o'lio(3M 166,650 222,250 74,050 37,050
4. 8M()QOOU G3t::.>0t::,':JOO (J?00Qo3t<1o81!/D
bo'lio (1) - bo'bo (2) - bo'bo (3) (22,650 (78,250) 69,950 106,950
5. 0oQ?ol>obol!/aoo
bo'bo (4) X (40%) {9,060 (31,300) 27,980 42,780
6. a..., 30 ool> 83 t::.>ot::.>aoo l!/oo033 t<1ol> oaal!!Do
bo'bo (4) - bo'bo (5) (13,590 (46,950) 41,970 64,170
7. M3at<1o(30(Jt::,'0 'lJ(Jt::,'01!/0 6oJOl!/ol> (33t::,'0t::,'QOO
bo'bo (6) + bo'lio (3) 06
bo'bo (1) - bo'bo (2) - bo'bo (5) 153,060 175,300 116,020 101,220
8. l>ot::.>oJ30Q?oG001 c;ot<\30(.Jt::.'QOO
x (1 - 0.40) 0 0 0 30.000
9. 08061!/0 'lJ(Jt::,'O(l?O foJO(QO
bo 'lio (7) + bo 'bo (8) $153,060 $175,300 $116,020 $131,220

b0c;>tQO (QM0'lU (0008000 = 500,000$ (08

Clo8a>b3030Clo, au 0t"10G tQ060b0t"1feooo .3<Yi0'lod@JoG '1lo).

Aggarwal, Raj. Capital Budgeting Under Uncertain(v. Englewood Cliffs, NJ: Prentice Hall, 1993.

Barwise, Patrick, Paul R. Marsh, and Robin Wensley. "Must 82-91.

Finance and Strategy Clash?" Harvard Business Review 67
(September-October 1989), 85-90:
Bierman, Harold, Jr., and Seymour Smidt. The Capital Bud-
geting Decision: Economic Analysis Projects,
8th ed. New York: Macmillan, 1993.
Hartman, Joseph C. "Technical Note - New Depreciation
Rules from the Job Creation and Worker Assistance
Act of 2002 and Their Impact on Capital Investment." The
Engineering Economist 47 (Summer 2002), 354-
367.
Kim, Suk H. "A Summary of Empirical Studies on Capital
Budgeting Practices." Business and Public A.flairs 13 (Fall
1986), 21-25.
Levy, Haim, and Marshall Samat. Capital Investment and
Financial Decisions, 5th ed. Englewood Cliffs, NJ: Prentice
Hall, 1994.
Marshuetz, Richard J. "How American Can Allocates Capital."
Harvard Business Review 63 (January-February 1985),
Rappaport, Alfred, and Robert A. Taggart Jr. "Evaluation
of Capital Expenditure Proposals Under Inflation."
Financial 1Hanagement 11 (Spring 1982), 5-13.
Seitz, Neil, and Mitch Ellison. Capital Budgeting and Long-
Term Financing Decisions, 4th ed. Mason, OH: South-
Westem, 2004.
Shapiro, Alan C. "Corporate Strategy and the Capital
Budgeting Decision." Midland Co1porate Finance Journal 3
(Spring 22-36.
Van Horne, James C. "A Note on Biases in Capital Budgeting
Introduced by Ination." Journal of Financial and
Quantitative Ana(vsis 6 (January 1971 ), 653-658.
Part V of the text's web site, Wachowicz 's Web FVorld,
contains links to many finance web sites and online
articles related to topics covered in this chapter.

347
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2 (a) 39,530 73,962(c)
3 39,359 (d) 113,321
4 32,219 145,540

350
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6.:>J.:>!:Qob 8om(Y)!:QO .:>Mob (JJ(J006ob Clo!:!?" 0060J3omo (IRR), 0806!.l?"
0 06.:>J3aa10,
{NPV) ti?" 8018006006(Y)6ob o6U?odbo (PI). dOC\?00"!.l? !5306
801dfi.:>MOD00U 8om(Y)i:Qb. ob 0061801ti?0060 80-3 m03ob M(Y)l:QOb"G !5306
8081l(n60fia
i:QM01ob 8oboti?3om !:!?" 80-4 m03ob M(Y)!:QOb"G
u0063ali(linl30"' :Jfi"'Dd8nli 'B"bo.:>60 80180000.:>6(Y)6ob b.:>Jombo.
IJ(.:> (JJ()00oob Clo!:Q.:> 006.:>J3omo (!RR) b.:>n63ob8ooo(Y) 0060U?"U?Ooobm3ob .:>Mob ti?ObJ(Y)68ob
u061Jnlin n63au(lio 8 00onli
006.:>J3omo, o8o6!:Qi> 6"J"ti?000b
(CF) bi>OtJObo 6.:>Ji>ti?ob {ICO). ffi(J bi>OtJobo
06 b.:>Mfeo ti?M(Y)b, o0o 006"J3omom, IRR, 0803061.:>!:Q

_ CF1 CF2 CF
Ico - 1
+ 2
0
+ ... +--'---- (13.
(1 + IRR) (1 + IRR) (1 +IRR)"

08 0 301'\0!.l?, IRR .:>Mob 0 06.:>J3omo, ti?ObJM680Mo60b ()Jomo6b

0806!.l?i> 6.:>Ji>l:QOi'iob t\?0606.:>b - CF 1 - CF0 - bi>OtJOUO
(ICO) ti?M01b. !53060 mo3'bob 00801b.:>dM(Y)60
i:Q.:>6.:>!:Q0.:>Mobm3ob 08(Y)(3.:>60 00801ob.:>b(Y)b Clo8U?oo6.:>nM.:>ti?
$100 000 = $34,432 + $39,530 + $39,359 + $32,219
' (I + IRR)1 (1 + IRR) 2 (I + IRR)3 (1 + IRR)4

(JJ()QO<'iob Cloi:Q.:> 0 06.:>J3omob 08(Y)bb6om, IRR, 'b(Y)8fe0M 8(Y)oo03b

0.:>bO(Y)Mo6ob 8om(Y)tl?(JM .3M(Y)(30bb
0i>8(Y)t10606om, b06oti?600M(Y)tl? 01'lbo6(Y)6b .3M010M08060 U?" !:Q.:>.36l(Y)061080-
008(Y)3ot10601m 0 .:>bo(Y)t'lo6ob
.3M(Y)(30t\?(JM1>do. Ob 03ob801'io60 m03oi:Q.:>6 06 0 061000. 8006108 .:>Mob
Clo8mb303060, M(Y)l:QOb"G 00bo(Y)Mo6ob 8om(Y)i:Qob 008(Y)t106060b 3061
U?"3()6M(J6tl?om !5306 b.:>!:Q.:>(3 (J6!:Q.:>
fQObJM68oMo6ob 0060J3omo, 000m.:>6i>6Mo<'>tl?"
0806!.l?" 6"J"U?o6ob !:Qo60606m06 bi>OtJobo 063ob800006om. U?"3()Cl30m,
M(Y)8 !5306 3oot106m 15%-0060 i:QObJ(Y)68oMo6ob 0060J3omom (Q" 008(Y)3d3om03m
0806(!?" 6.:>Ji>(Q06ob tl?o60606oi:Q.:>6.
Clob0608obo J010'Boooo68ob 8(Y)do66obm3ob 008(Y)3ot106(Y)m 08 0006ob
!:Q<'>606lmotQi>6 II. OtJ(Y) Mi>8tQo6feoM8o
0.)8(Y)03080606060 PVIF;,0 = 1/(1 + i)".)

PVIF 15%-0ffi
$34,432 x 0.870 $ 29,955.84
2 39,530 x 0.756 29,884.68
3 39,359 x 0.658 25,898.22
4 32,219 x 0.572 18,429.27
$104,168.01
------··-·---·

15% ti?ObJ0168ob 0i>6i>J3omo dOtQ00iltl? .36l(Y)od8ob

0[j:i>Moo6b b.:>OtJob 063ob80000b 100,000$-om. CloU?00iltl?, !5306 (J6tQ"
3G"tQ(Y)m 808.)tQ fQObJ(Y)68o1'looob 0.)6i>J3omo, 6\(Y)8 (J'BM(Y) 8o8"tQ 0.)3ilmi>6i>6M(Y)m
6.:>Ji>t\?060 (Qi> CJ03i>8(30M01m 8i>mo 100,000$-
8(!?0· 610 btQ060 (QObJ01680Mo6ob 20%-006 006.:>J3omob (QM(Y)b?

352

'""''"""'''""' - "'"' 6006"'0
G°'(J1'1b OMMnl> BtQQ0.>1'13
':'Jo6rioo 1'1nob3ol>
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li1"18:Jrc;no l>0tlnfi010
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'(J':'Jrc:'"l!1n foJ>lQ:Jool>
tQnl>Jo'60m"ioonl>
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8ol>0c:;:io0\!1·
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e;arc;o 5806\:Q.) 60J0tQDoO PVIF 20%-0m 0brc:'06\:QDl!:';'O
..
I $34,432 X 0.833 $28,681.86
2 39,530 x 0.694 27,433.82
3 39,359 x 0.579 22,788.86
4 32,219 x 0.482 15,529.56
$94,434.10
.;8 (QMMb .:.8Mmflo(JC::O 1QObJM60oli 0060J3omo OtJM d.:.e::;o.:.6 CQOIQO. 80('.?00(JC::O .:.be::;.:.6uwe::;o
C'.?omoo()e::;oo.:. .:.moli 6.:.Je::;ooo, 301QMO 8Mli.:.e::;MIQ6oe::;o 100,000$· li()r1.:.mo. IQObJM60oli
0060J3omo, "()Goe:::oooe::;o 'B()C::"(l:!o 6"Jo1Qoli CQOliJ0160omooolim3oli 100,000$-8(l:!o, ()61Q" OtJMli
15 (l:!" 20%-ooli ClMmoli .
.:.be::;o6(l:!OC::o ('.?OM::JO()C::OO" 15%-om >ICO> .:.be::;o61QOC:: ('.?OM::JO()C::::JO" 'bo 20%-om
$104,168.01 > $100,000 > $94,434.10
mo.:.c;:()m 006"J3omm06 800be::;Mooolim3oli, 8306 3"Jomoom
l
ClMMoli Clo81Qo 0 6.:.oM.:.IQ:
0.15 $104, 168.01 ] 4 68 01
0.05 X [ IRR $100,000.00 $ ,1 · $9,733 .91
[
0.20 $ 94,434.10
x $4,168.01 x = (0.05)x ($4, 168.0 l) = 0.0214
0.05 $9, 733.91 $9,733.91
(l:!" IRR = 0.15 + x = 0.15 + 0.0214 = 0.1714 .:.6 17.14%-li. (JM8.3o(J0oM'bo IRR-oli
00801060.:.MoCloo.:. 030de::;o3li 17.04%-li, MoG 8MG08()e::; Clo8mb3030Clo di:>e::;o.:.6 .:.be::;Mli .:.Moli
fl3061J 800be::;M30oom .3.:.1.i(Jbm.:.6.
Ol(J '(3(JC::0CQO 60J0(QO 0MOb CJo8M(Q0600::JOOb m06.;00M'bM800Mo 06()00000, bMC::M b00tJObO
063oli00000 b(l:!OO" 6(Je::;M306 IQMMb, 0M oMU[JOMOb GCQM8oe::;ooou ()0bbMMOOOU 8omMIQOb
0 08MtJo6ooou u.:.itoMM 0o.:.. fl 30 5 (JOM.:.e::;MIQ u.:.5tiou o6 30 u00 8 0.:.u 0.:. 3tJM'Bm tJM 30 e::;oe::;o()r1
CJ 08Mu.:. 3.:.e::;'b 0 !!!" 8M 3d0o6om 1QOUJM60o6'>oooli .:.be::;M JMQ'Boooo60u .:.6()o0o0ou 0be::;061Qoe::;o
C'.?06oo()e::;ooou JM::J<(30QO[J6@Joooli ob6oe::;Clo (PVIF A). ::JU .;obu6oo.:. 08001, 6018 58o61Q.;
'B()C::"(l:!o 6"J"C!?ooou 1Qo50o0ooum3oli, MM8oe::;u.:. 8 00M8M01Q006li 06()00000, fl306 030j3u:
ICO (PVIF AIRR.n) X (do6oMCQ()C::O '(3(JC::0(J:!O 6oJ0(J:!O)
(Qi:> .3o6Moooou 8"1Q"6"03e::;ooom
(1
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2,778. !QP,bJM60o6ooou .:.be::;M JM0'(30QO::J60o MOJboe::;o.:.60 .3::JMOMIQOU 85J603Clo obP1oe::; IV-Clo
(6.:.bom 1Q06oMOlO .:.8 ooc,6ou OMC::MU) !:>MOU 2,798; QU Q0<(3MO Cl::iou.:.008000 16%-o.:.6 1QObJM6-
&nMooou 006033omu. <D.:.81Q::J6"(J:!"G 2778 6.:.Je::;ooo.:. 2798-'bo, d6oe::;o .:.6 .:.Mou o8oli 1Q0Cl3000,
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a
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6oo()e::;o0 ()J()8[]00b 00{!!0 0060J3omoG 8omf'l(J:!O"l06, .:.6oli 063oueoGOOU OOIQ0 8M800000601ooli
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353
 5.

8f'J0000G 0 06.:.J30010. 01() (JJ()QDOoli 0 060J30010 .:.tJ:0MoooG

006.:.J 3001G, .3Mf'l:Jd8o .:.Moll 01() <>M<>, .3Mf'l:Jd8o <>Mou 01() 8f'l 0oooG
0 .:.6.:.J30010 <>Moll 12% f1306u 08f'l(3<>60Clo (JJ()80ooG
0 .:.6.:.J30010G u<>n630u80(3of'l od6oo<> 01'() 8f'l 0ooou
c,060J30010 .)MOU 8f'Jc,oo.:., 0630U8f'JM0, Mf'J8 Jf'l8.3.:.6o.:.
008f'Jo8()Cl<>30ou Cl0G.:.o.:.80Go u<>n630G80Gof'l .3Mf'l0d8oli 8.:.Clo6 .3Mf'l:Jd8oli
8oc::i00.:.8 IRR 0630u80(30001, 0tJ:0Mo00G .:.8 8f'J8c,00006f'lOOU
0 .:.6.:.J3001G, 8f'l83G0G Jf'l8.3.:.6oou <>dGooooG G00.:.'bMf'l 'B.:.uoG oli 0obli600.:. 08001,
Mf'l8 Jf'l8.3.:.600 ootio<'>G .3Mf'l:Jd8oG 8M8 000006f'looG 0.:.6.:.J30010
8080<> c,.:.6.:.J3001'bo, .:.8 Jf'l8.30600G <>dGooooG G.:.o.:.'bMfYl
'B.:.GoG 08 (Jf13060ou, <>Mou
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80680 (6.:.b001 d308f'l01

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S8n5\l/o ubc;i,16\l/Oe:'o u.:.06-
('.?olOuo(Jc:;iQ6o
present (:\!'V) -
30G80Gof'l (NPV) <>Mou
u;,n631'ib8nGnM u0otiouo
3t'i"'ad8aonb <>d3G G0b0:
0806!!2"
NPV = _.s:!l_ + CF2 + ... + CF" - ICO (1
3"101aj8ob
(1 +kl (1 + k) 2 (I + k)"
uoo8ouo
k <>Moll 8f'J 0000G 0 06<>J30010 ub30 <>Moll 0060uo0M
0 .:.6G.:.

ANHEUSER_ BUSCH Anheuser-Busch

Comj>allies JM8.3060:JOO

JM8.30600u 6no0M0130G0130G <>d3u o68n6-

Go(JMO .3MMDd®oli 8oc::inoou
'l3o6.:.6u(J(i}O G0'bM80 ,)MOU, <>tf:<>MO[JOG 01() ,)M,) aoGo
8f'J0 no<> 063nl>80(3M'b[J Jf'l8.30600G

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<>dG0.3®06uoG JM08:JMO(J8oG c,08MG0b3ou [JM010 ,)MOU 080'b0, MfYJ8
.3MM:Jd8o od6000 01()
<>tf:<>MO[JOU dMf'l:Jd®oli 8oc::inoou 08 JM08[)MO(J8ou
oun0100, Mf'lC,MMo(3 063ou®0Goou (JJ()8DooG Jf'l0'l3oGon68ou
01() 8M8c,00006f'JOOU c,06<>J3n010 c,06G0'bc::i3(i}03u 08
8f'J8 80 0006Mo0G, o6 3nt.i®MMou 0'bM001, JM8.306Mu
u0063nu®oGoM Cl0801b3n3<>Clo Jf'l8.3060.:.
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354
 01() 8M8000006MOOU 0060J30010, .:>6 CQOUJM6@)oMooou 0060J30010
u6MM.:>CQ, JM8.306oou .:>dGoooou u000'llMM C(puo (J6CQ0
uoC!?oC\?001, Clou0008ouo u0063ou@>oGoM .3MMOd@>ou 6806CQ0
. .3MMOd@>ou 6806CQ0
.:>M (J6CQ0 8M0bCQ06Mu JM8.306oou .:>dGoooou
u000'tJMM <(30U'tJO.
01() 15306 CQ.:>3()030001, MM8 8M0aoou 0060J 3o010 .:>Mou 12% C\?00 003 Mou
Clo8C\?00• 153060 6060 6806CQ0 od6000

NPV = $34,432 + $39,530 + $39,359 + $32,219 _ $IOO OOO

(I + 0.12)1 (1 + 0.12) 2 (I + 0.12)3 (1 + 0.12)4 '

.:>6

NPV = $34,432(PVIF 12%. 1) + $39,530(PVIFm,.2) + $39,359(PVIFm,,,3)

+ $32,219(PVIF 11%.4) - $100,000
= $30,748 + $31,505 + $28,024 + $20,491 - $100,000
$10,768

JOCQQ3 .:>8M(3060 .:>8Mobu60u JM8.3o(J@)OM001 1 .:>6

Clou0008ouo .:>Mou 6006ou
Qp60M01Clo. M.:>8CQ060CQ.:>(3 .:>8 606.:>CQ.'.>CQQOOU 6806(\?0
.'.>MOU CQOCQO, 6o60CQ0CQ000 (J6CQ0 oj6ou 6806(\?0
8001MCQ'lio.
o8o6(Q.:. (NPV) al'1.:.iaoJO. 5806CQ0 CQ0
(JJ(J0000U dOQ?0 0.:.6.:.J3001ou 8::J01MQ?OOU doM0010CQ0Q? 8033030M01 .3MMOd@>oU 8oc.;ooou .:>6
(J0MSM'?.lou 8u 0 03u u(JM001Clo 13.1 15 30 6 30Cl(Jdo<'>01 MM
('/Oo'(JOJO, 8001MQ?U 15306 8ooM 0M0<(30JO,
0Gobo3l>
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:J<'\,.,odenl>
Q?.:> CQObJM6@)ob 0060J3001b oMMob. MMQ?OU.:>(3 Q?ObJM6@>ou
f58n6m> 0060J30010 .:>Mob 6806Q?0 80M@)o30Q? .:>Mou
!!I" Clo8MQ?06oooob .3MM::Jd@>ob 60J0Q?OOO. Q?.:>3()03001 @)M0Q?0-
<lrri<'iol>. .3MMOd0n - b0Q?0G o08MQ?o6 0o0oo .:>j:0Mooob 0 0n?o6oooob Q?0 b0n?0G
b063obo 00Q?o6000 (00n?o600000) 8M33000 Clo8MQ?o6oooou - 50P'i8Moo3000 6806t\?0
MMQ?::Jb.:>(3 Q?ObJM6@)ob 0060J30010 .:>Mob M0n?006 Q?ObJM6-
@)ob 0060J30010 o'liMQ?oo0, 68o6Q?.:> 0M0<(30JO obM000 j303ocn 80M-
ji;3603. b.:>!:Q0(3 NPV b0'tio 00Q?0J3001b c.;oP'idb 0P'10'(30J'bo,
.3P1Mod@>ob 58o6Q?.:> 0P'lou 006b0'tic.;3P'lob 8oboQ?3ocn, Q?ObJ(Y)6-
@)oP'looou 006.:.J3o010 08 60P'i8M.:.n? 0 o6b (JJ() 00 oob Clot\?0 0 060J3o01b - b(JP'l0010 13. 1
NPV 0P'l0'?30Jo 0103'bob 008Mu00MM00 Q?060Q?00P'lob (Jl5306oob .3MMOj@>ob 6806(Q0
P1o 0 o Q?ObJM6@>ob 0 060J 3o-
01ooob013ou. Q?ObJM6@)ob 0060J30010, .3P'iMod@>ob 5806Q?0
08 (QObJM6@>ob 0060J3o01ooou013ob, 8o@>o0
(JJ(J 0 aoob Clot!?.:. 0 060J 3o01'b 0, .3P'iMod@>ob 5806(Q0 0P'iob
(J0M3M<(30CDO.
01() 8M0ooou 0060J30010 (JJ(J0000b dOQ?0 0060J3001'tio, 15306
Q?0300106b800001 .3MMoj@)b MP'io30 8001MQ?ob 008M30600001. (Q03()Cl3001, P'iM8 8M0ooob
0060J30010 03(Y) 12%. MM0(Y)MG 60153060000 13.1 b(Jfii001'tio, .36iMod@>ob 6806t\?0
0P1ob 10,000$-'bo 80@)0. (6806(Q0
15 30 60 5060 0 08M05 00P100 0o0onCQ06 308 001, P1M8 o0 o o3M 10,768$). P108(Qo-
60n?0G .3P1Mod@>ob 5806Q?0 0!Yiob CQO!:Qo, 15306 300106b8ooocn
.3!Yi(Y)oM>G 5806(Q0 8001MCQnb 008M30600001 . .:.8ob 8b003G0CQ f\306
300106b800001 .3fiiMod0b (JJ()00oob Clo!:Q0 0060J3001ou 8001(Y)CQob 008(Y)3o600001, P10CQ 0 06
(JJ(J&Ooob oo!:Q0 0 060J30010 ( 17%-BCQo) 0EJ:0P1ooob 8(Y) 0 ooou 0 060J 3omb ( 12%-u).
m(J 0 06.:.J 3 o01000 CQO(Qo0, 30CQ!Yio (JJ(J 00 oou Clo!:Q0 0 060J3ocno, 15306 3(]0!Yi3M'(301
.3!YiMod0b MIYio30 8om(Y)!QOb 8obo(Q3ocn. 08030!Yi0(Q, f\306 fii(Y)8 (JJ(JOOOou CloCQ0
0 060J 3o010 (Q0 6806CQ0 a 0mMCQo<'>o 8b 0 03u .30bvboob
u00630 G0 o0 oM .3!Yi(Y)odonG 8oc.; 0 oou 06 ()0IYisM'?.loG CJ 0G00080G0CQ.

355
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c

NPV 01'\o'BoJo 0103'bob

GoC!l'iMoo jol'\b6obo0130G - 5 10
6806(!/o

Gb30C!/0Gb30 (!/OGJf'l680G o.:>6.:>J3omo (%)

-10,000
(!/OUJM68ob
0060J30010Go013ol>

61.:io 8D<§o od6Do.:i 61.:i(Y')u;w6(Y')o.::. 061.::.<noJ'bD, 8001 8D<§.:>Q? 'b(Jb<§o

.::.c:i8(Y')fi6Q?DO.:> NPV-1.i 061.::.<noJo. m(J8G.::. b.:>J8.::.61ol>o NPV dM(Y')-
dM(Y')Dd<§obm3ob booM.:>CQ 0.::.8(Y')03.::.CQ 0 :Jb 0M.:><noJo,
b.::.80 NPV CQOUJ(Y')6<§oMnooli
0.::.6.::.J3Dmom, NPV 8(Y')80Doo.::.6(Y')ool.i 0.::.6.::.J3Dmom {!?.:> NPV
ClDli.::.o.::.8ol>o dM(Y')Dd<§oli IRR-om.

J(r),,.,Dd(!iob .::.6 8(Y')0Donli Q?.:> b.:>MJ::Donli .J(Y')D-

dMMtJJ8ol> csnonn6<§n 0806!!2.::. 6.::..J.:>Q?Dool.i CQ.:>
6806(!/0 l.i.::.o::inl>o .j(Y'):J<B0(30:J6@>o. :Jb 0.::.8(Y')ol.i.::.b(Y')b
6oJ->C!laoob Cln8U?no6.::.nM.::.U?

J"'tJ'B0(30tJ68o oa
31'iMtJJ8oG Go68oG (1 + k)1 (l + k) 2
... +
(l + k)" rlrco
063ab8ooooo'bn.
fi3n6li 8nnM 8obnCQ3nm,
PI = ($30,748 + $31,505 + $28,024 + $20,491 )/$100,000
= $110,768/$100,000 = 1.11

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363
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A $50,000 15% $12,000 1.24
B 35,000 19 15,000 1.43
c 30,000 28 42,000 2.40
D 25,000 26 1,000 1.04
E 15,000 20 10,000 1.67
F 10,000 37 11,000 2.IO
G 10,000 25 13,000 2.30
H 1,000 18 100 1.10

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li.J5tl0Li0 Li05tl0Li0
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-------
F $11,000 $10,000 c $30,000
c 42,000 30,000 B _11000
D _ LOOO 25,000 $57,000 $65,000
$54,000 $65,000
---------

PI NPV
c $42,000 $30,000
G 13,000 10,000
F 11,000 10,000
E 10,000 15,000
$76,000 $65,000

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369
 o8o6(Q0 60J0CQ.'.JOO li0d0floli .'.J'8.'.Jd@Jo06(Y)OOm
06ioli - 1,600$ + I 0,000$ CQ0 - 10,000$. M(Y)(Q.'.J00(3 fl306 (JJ(JOOOoli doCQ0
0 060J3omoli 60J0CQoli CQ06ooolim3oli, R306 M(Y)8 06ioli 06i006imo, 06i080CQ
(Y)Mo: 25% CQ0 400%.

$1600 = $10,000 - $10,000

' (1 + IRR)1 (1 + IRR) 2
li0CQ0G IRR= 0.25 06 4.0

oli lio@J(J0Go0 li()fii0mClo 130.1, d.'.JCQ80o0 08 06i0@>6i0CQ0Go-

0060CQ0CQ.'.]Ooli NPV 0M0<(30Joli 0 06. 0% CQOOJ(Y)6@Joli 0 060J3::imoli (QM(Y)li, .36i(Y)od@Joli 0806CQ0
806i@Jo30(Q 06ioli 60J0CQ.'.JOOU 1i:08o . .'.JU 06iol> - 1,600$
t'10CQ 0 06 0i'J:0t'1oool> Clo8(Y)L>03e:;iool>. b(Y)e:;i(Y)
o'bM(Q.'.)00 CQOUJ(Y)6@Job 0 060J3omo, 8.'.J(Y)M.'.J 0 0b03e:;iob C{OMQO(Je:;>.'.]00 JO Je:;>.'.]-
Clol>0008ol>0CQ CQ0 0060CQ0U?oool> 0806CQ0
c:;o6ioo()e:;ioo0 bCQ000 CQ0CQo6omo, M(Y)CQol>0G CQOUJ(Y)6@Jol> 0 060J3omo 0i'J:0t'1oool> 25%-l>. t'10CQ 0 06
CQOUJ(Y)6@Job 0 0foJ3omo o'bM(Q.'.)00 100%-'bo 8::J@J0CQ, tJ3.'.Je:;'0 foJ0CQ.'.]Oob
(1(Q02 oe:;ioool>m3ol>) Je:;'.'.JO(Je:;>(Y)OU U0btJOUO Clol>0008ol>0CQ
- 1,600$. 400%-ol> CQM(Y)l>, 0806CQ0 bCQ060 6(Je:;io.
lfo60(Q0(Q.'.JOOU ol> @Jo.30 006l>b303CQ.'.)00 Clo8mb3030CQ06, M0(3 60fl3::i60000 U(JM0mdo
13.1, MM8oe:;iCloG o8o6(Q0 0MOU CQOUJ(Y)6@JoG 0060J3omol>
Clo8Got'1oool> '8()6dG00 CQ0 06iol> (JJ()80ool> CloCQ0 0 0foJ3omo, MM8oe:;ioG ()@l(Y)e:;>CQ060
o8o6(Q0 60J0(QQOOU U00tJOUO 00l>03e:;iooom. 0M0-
@JM0(Q0(30()e:;' oo60(Q0(Q::J00U JdM6CQ.'.JU 6i08CQ06080 (JJ()80oob dO(Q0 0 060J3omo
60J0CQol> b(Jt'10mol> 8oboCQ3om. 0 063oboe:;iMm '(3(Je:;'0CQO 60J0CQ06ol> Clo8U?ooo l>ofiioooo:

0 2 3
$6,000 -$11,000 $6,000

1,000

500

-500 t!10uJP16<!l>Ou o060J3omo (%)

-1,000
NPV 3l'io<tJOJO liodoRoli
Jl'irood@Jnlim3oli
8013oonli rol'i -1,500 I
ClnCQo 3060J3omli

370
coll 58o6(Q.'.l oj6oo.:i
8M 0oooll Clo<Q.:i 0.:i5.:iJ 3omoooll M.'.lM<Q05Mo.:ill .:id 3ll 'bo<Q"
6oC:l6oll M.'.lM<Q06Mooll 6.:iJ.:i(Qou <Qo6oo.:iC:lo. R3o6 0 3.:ij3ll
ll.:i8o (Q.'.l 8Mc,oooll ll.:i8o c,.:ifoJ3omo. 8o(Jb0(Q"3"(Q o8ou.:i, MM8 600,:,600 M.'.l8<Qo6o8o
.:iMoll .3oMMo.:i 8M 0ooou 0o<Q.:i 0.:i5.:iJ3omooollm3oll, o0o
.)M .)Moll ll.:iJ8.:iMollo .:illomo 008mb303oooum3ou. 8Mc,oooll OO(Q.'.l o"foJ3omoooll
.:iMuooMo.:i .:iu 030 5"J"<Qoooll uo<Qo<Qo'b 0. 5"J"<Qooou
oo8<Qooo u0Moooollm3oll .)MUOOMoll OMC))O (JJ()()OOOU dO(Q.'.l c,.:ifoJ3omo (32.5%), 6oo6oll MMO
8o(Jb0<Q"3"<Q:

0 2
-$1,000 $1,400 -$100

MM<QOll"G 3.:i5ti<Qooom 506.:i<Q"<QDo.:iu, .:id3u 8M 0ooou M.:i8C!?o5o8o 0.:i6.:iJ3omo,

MM()MM ll5MMo? R3n5ll 0.:i5.:iJ3omC:lo,
ll5MMo 0.:i6.:iJ3nmo 25% m(J 400%? .:iM(3JMmo 0.:ifoJ3omo .:iM .:iMou ll5MMo, M.'.l(Q 0 .:i6
.'.lM(30MC))O .)M .)Moll 063ou&0Gooll 'bM8.:i. ())() JM8.3.:i6oou 8Mc,ooou
0.:i6.:iJ3omo .:iMou 20%, (J6(Q.:i OtJMll m(J .:iM.:i 063nll&0Go" 08 <B"deoll 8o(Jb0<Q"3"<Q,
MM8 8M 0ooou MM030 OO(Q.'.l 0.:ifoJ3omo .:iMou (!?O(!?O 3o<QMO 8M 0oooll 0.:i6.:iJ3omo,
OMC))O onb0(Q30()) ll(JM.'.l())O 13.:i.1 .)Moll ll.:iJ8.'.lMollo, MM8 (Q.'.l306.:ibMC)) 20% (QOllJM6eoll
0.:i6.:iJ3omom .3MMDdell .:id3ll (J.'.lMtJM<BOC))O 5806(!?.'.l (-211 $) (Q.'.l
OQC!?Do"(Q, .)M (J6(Q.'.l od6oll

NPV = $10,000 - $10,000 - $1 600

(1 + 0.20)1 (1 + 0.20)2 '

$8,333 - $6,944 - $1,600 = -$211

0'b.:i .:i8Mu.:ij.:iRoll .:iMou oll, MM8 JM8.3.:i6o.:iu

.:id 3ll MMo .:iMR 03 .:i5o 8oMMO 5.:iJ"<Qooou C!?"Rd.:iM 0o.:i 0Mmo
1,600$ ll.:i<a.:ill()Moll o"<Q"b<Qom. Cloll.:io.:i8olio Jomb3.:i .:iMoll: M.:i JM8.3.:i600Gm3ou 10,000$-
oll 0.:i8MtJ06oo.:i QMmo oll JOmb3.:i JM8.3,:,6oollm3ol1 063oli-
&0Gool1 8M0oooll c,.:i6.:iJ3001'bo (QMMoll ,:,8 .30MOM(!?Obm3oll. ())() JM8.3.:i6o.:i
0.:i8Mo8()Cl.:i 3Mll 20% .:i8 <BM5<Qoooli 0 .:i8M80 50o.:i'b 0 <Q" .:i8 0 .:i8M8(JCl.:i 30 ooll
o.:iG 8M.'.lb(Qo6u .3oMOM(!?Oll .:i8 od6no.:i 2,000$,
li.:i(3 JM8.3.:i6o.:i 8oMMO . .:i8 2000$-oll 20%
<QOllJM6@Joll 0.:i5.:iJ3omom .:iMoll 1,389$ (2000$/( 1+0.20)2) - MM<QDli"G <Q"o8.:ieoo.:i
1,600$ JO(Q03 8Mo3Gn8ll 58o6(Q.'.l -211$-ll .
.:i8oll 8ll 0.:i 3ll.:i<Q, llb 3.:i .3MMJdeooo, .:id 3m 8Mooooll 0.:i5.:iJ 3omooo,
.:iMoll (JJOmnll.:i(Q 58o6(Q,:, 8o(Q 0 M8ob 0.:i8Mtj[J6[Joom.

,:,8 m.:i3Clo R3o6 MM8 OtJM .3MMOdeoll Mooeo60Clo

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8m.:i3.:i<'10 JOmb3.:i .)Moll: M.) 8Mb(Q[JO.'.l .3<'1f'1od&oll (J<BMM 'b(Jll-
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063olle0Go.:ib bb3.:i .3Mf'1Jd&ooC:lo. R3o5 36.:ibom, (i]M8 08 Clo8mb30300Clo, MM<QOb"G
.3Mf'1Jd&ooob 0f'1C'.'?f'1U ,:,(i] od6oo.:i
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8f'18.:i3.:iC'.'?o b.:io63obeoGoM . .:illom Clo8mb3n300Clo, R3o5
(JOPl.)C'.'?M(Q .:i3o(i]Ro3m .3MMOdell 58o6(Q.'.l 830C'.'?"'bo
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371
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!Q0833'oMCQOU MMo 0C!?.'@JOM60@Jo()C!?.'o 806d060CQ06 OM<nou i:JOCQ30 - MM8C!?!oCQ060G OM<no 806d060
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006oboe!?.'000 MM0 MMG <loG00080Go 30(i\006@JoooG 00680MM000G <lo!Q08006MooG <lo'/30Goo0 - 06
,,fi060G3C!?.'OOou - MC'l80C!?.'o8o G00M<nM ,,G00630G@JoGOM dMMo'bM6@J08CQO"·

f)06&(33c::?Dool> '.$i':0:faoG (G0a6low1 uobo(3M(3bc::?(Y) (30JL::?OG) 8o(!( 0 M8o

mo<nMO(JC!?.'o ilMC'lod8oG 0 080MM000 0CQMO()C!?.'o iloMoMCQoG CQ0CQ8M808CQ0, MC'l!QoG0 8 fi3a6
<lo 0 3ode!?.'00 CQ030GM(JC!?!M<n mo<nMO'JC!?.'o ilMMOd8o OM<nu0 CQ0 08030 D::JC!?!G, 0 08Moo303G 8G 003G
8(i)030C!?.' 0 30M fi060G3C!?.'OooG S(;03'3G, MM8C!?.'00G0G ad600001 GoGMGbc::'oG G00M01M ()8MJC!?.'0Go
GOJC!?.'o. 01001MO(JC!?.'O S(;0tJ:3oG CQ0G0GM(JC!?!G JM8il0600G od6ao0 oCQo6@J(JMo 0(i)fio3060 8o()bo-
1Q030CQ 080G0 M0 0Mfio3060 80J001(Q0 (Q0U00tJOUdo.
<lo8!Q08 fi306 08M3bu6001 <nO<nMO(JC!?.'O fi060G3C!?.'0oou dG::JC!?!OU o8o6!Q0 0be!?.'06CQOC!?.'
e:ioMoo()C!?!::J00G, NPV'.5(;03'30, <lo8'!!ooo '1JMM8(JC!?.'oG 01060b80CQ:

NPV = NPV 0
f;;: (1 + k)n(t-1) (136. l)

G0CQ0G n = ::JM<nb::JC!?.' 00680MMOO(JC!?!o ilMM::Jd@JoG GoGMGbc::'oG GOJC!?.'G, (oc::'aooG M0MCQ06Mo0);

NPV. = ilMMOd@JoG OM<nboc::' 30680MMOOOU o8o6(Q0 0be!?.'06CQOC!?.'O e:>OM::JO(JC!?!::J00 n-OC!?.'O(JMO M0C'l-
CQ06MooG GoGMGbc::'oG (30JC!?.'om;
R = 0 08::JMM00000G M0MCQ::J6Mo0, MM8C!?.'oooG G0::j:oMM0 ()8MJC!?.'::JGo G00M01M GoGMGbc::'oG
x
GOJC!?!OU (J'bM(J630C!?.'tJC'l'1JOU<n30G, (R) (n), tl30C!?.'0 a06G0boe!?.'30C!?.'0 (JM0100M01()08M8M0Gb030
0C!?.'@JOM608030G0130G;
k = !QOUJM6@JnM::JOOU 0 060J30010 <no<nMO(JC!?.'o JM6JM::J@J(JC!?.'o ilMMOd@Jou0130G.

0 5 10

aMmbac::> NPVs $5,328 $5,328

NPV 11"6"G3c::>3<'>oG 10%-nm 5 fic::inl>m3nl>

3,308 ......
0,.a . . .,.6 0,.i;;o<J300G
(!/Mmol> b"'bo
A-:3Mm3MJJ0Gm3ol> 2 $5,328
$8,636 = NPV · I.
(NPV, = $5,328; = t=l (1+0,10)5(t-l)
k = 10%; !!i" R = 2)

0(i\uooo010CQ, JM8il0600 oe:ioou 0 06G0'be:i3M(JC!?! 08061Q0 0be!?.'06CQOC!?.' e:ioMOO()C!?!::J00U <no<nM::J(JC!?.'o

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00M8M<lMoG 0Go010 '.5(;0::j:30G fi060G3C!?.'::JO::JoG.

CQ03(J<l3001 <lo8C!?::J8o (JM<nooM01 008M8MoGb030 G00630G@JoGoM A CQ0 B ilMMOd8ooo 0(i)uo0Mou,

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CllOuJf'lG<!!>Ou 0bCJ.'06Cl1DCJ.'O CllOl>Jf'lG<!!>ou 0bC!.'06'l1DCJ.'O
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o· $ (700,000) 1.000 $(700,000) 1.000 $(700,000)

I ( 1,000,000) 0.877 (877,000) 0.885 (885,000)
2 250,000 0.769 192,250 0.783 195,750
3 300,000 0.675 202,500 0.693 207,900
4 350,000 0.592 207,200 0.613 214,550
5-10 400,000 2.302* 920.800** 2.452* 98Q,8QQ**
$ (54,250) $ 14,000

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0.01 X [ IRR ]$14,000]$68,250
[ 0.14 $(54,250)

x $14,000 x = (0.01) x ($14, 000) = 0.0021

O.Ql $68, 250 $68,250
!.Qi> IRR = 0. 13 + X = 0. 13 + 0.0021 = 0. 1321, i>6 13.21 %. M1>!.Q0i>6 (JJ(JoO<'>oG Oo!.Qi>
0 1>6i>J3Dmo i>MoG 6i>Jc::>ooo, 301.QMO 8fYlooooG 8fYlmbfYl36oc::>o 0 i>6i>J3omo, .3MfYlJd&o i>M
od6t:J01> .
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350,000$ + 400,000$ + 400,000$ = 0)

378
 0b<".!!06<l?Oo:!!O <!?O<'iOo';'.lo:!!OM
600!!0 '13';'.l<".!!0<!?0 60J0<l?O <i?OGJl'l6<!l>Ou '1.l0d<!'>l'l<'iO 0b<".!!06<l?Oo:!!O <!?O<'iOo';'.l<':!!Oo0

0 $(404,424) 1.000
86,890 0.877 76,203
2 106,474 0.769 81,879
3 91,612 0.675 61,838
4 84,801 0.592 50,202
5 84,801 0.519 44,012
6 75,400 0.456 34,382
7 66,000 0.400 26,400
8 92,400 0.351 32.432
68o6<Q> = $ 2,924

81'l0lbl'l360<':!!0 81'l8030<':!!0 '13';'.l<".!!0<!?0 60J0<l?Ou 6806<!?0

0630u<!l>OG00 .)b<".!!06<!?0<':!!0 <!?OA0o';'.l<':!!Oo0 0b<".!!06<l?Oo:!!O c<OAOo"VC':!!Oo0
$200,000 $290,000 $ 90,000
2 115,000 185,000 70,000
3 270,000 400,000 130,000
1, 2 315,000 475,000 160,000
1, 3 440,000 690,000 250,000
2,3 385,000 620,000 235,000
1, 2, 3 680,000 910,000 230,000

';J6CQ0 nd6oli CQ" 80-3 .3tilMod®ooo, til.:iCQc,06 nlin6o ';JCQOCQ:Jli 6806CQ0

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379
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articles related to topics covered in this chapter.
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a::Ju0de:'f'l
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$3,000
·-----·-------·
0.10 ------·T3o0______ o)
3,500 0.20 700 ( 3,500 - 4,000)2(0.20)
4,000 0.40 1,600 ( 4,000 - 4,000)2(0.40)
4,500 0.20 900 ( 4,500 - 4,000) 2(0.20)
5,000 0.10 500 ( 5,000 - 4,000) 2(0.10)
L = 1.00 L = $4,000 = CF 1 L = $300,000 = crj
($300,000)05 = $548 = cr,

384
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6,000 0.10 _2QQ { 6,000 - 4,000)'(0.10)
:E = l.00 :E = $4,000 = CF I :E = $1,200,000 = <Ji
($1,200,000)05 = Sl,095 = <JI
·-------·--------------------·
D0J0(Qnb 0 on60(Q0!J,?OOnb013nb 0t"'inb
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CVB = $1,095/$4,000 = 0.27

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l (1 + 0.08) I (1 + 0.08) 2

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0.60 0.40 2,500 5
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403
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-----
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D 60,000 150,000
E 50,000 20,000
F 40,000 60,000
G 120,000 170,000
H 90,000 70,000
50,000 100,000
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406
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0.30 28,000 0.30 7.00 0.30 170,000
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0.15 30,000
l.00

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Clo8<Qooo (<Q08Mo3"e:'..'.'.lonm ):

407
 0 1 2 ®Pl®O NPV
-----------------·-------------------
$ 826 ) $ -810

-$3,000 -
$1,364
-E 1,240
1,653
2
3
-396
17

{ 1,653 4 926
2,273
-E 2,066
2,479
5
6
$1,339
1,752
NPV = 0.12(-$810) + 0.16(-$396) + 0.12($17) + 0.24($926) + 0.24($1,339)
+ 0.12($1,752) = $595
SNrv = [0.12(-$810 - $595)2 + 0. I 6(-$396 - $595)2 + 0.12($17 - $595) 2
+ 0.24($926 - $595)2 + 0.24($1,339 - $595) 2 + 0.12($1, 752 - $595)2) 05
=$868
-----------------------
0. 0.:i6Gb3.:i3000G G8.:i6!:!?.:i<Yi8o'bo<Yiooo01, 8306 03.:id3G - $595/$868 = - 0.685.
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-0.685 ClooG.:io.:.800.:i 0.25 . .:i8o8M8, .:i<YioG M01bol:!?.:i6 o<Yi010
Cl.:i6Go, MM8 08061:!?.:i od6oo.:i .:.6
2. ,). = $16,000 + $20,000 + $10,000 = $46,000

o"!:!?"b<Yi.:i = [($8,000) 2 + (2)(0.9)($8,000)($7,000)

+ (2)(0.8)($8,000)($4,000) + ($7,000)2
+ (2)(0.84)($7,000)($4,000) + ($4,000) 2) 1/2
= [$328,040,000]°' 5 = $18,112

6. 08061:!?.:i = 46,000$ + 12,000$ = 58,000$

2
0.:iU?.:ib<Yi.:i = [$328,040,000 + ($9,000)
+ (2)(0.4)($9,000)($8,000)
+ (2)(0.2)($9,000)($7,000)
+ (2)(0.3)($9,000)($4,000)) 112
= ($513,440,000] 05 = $22,659
.3MMOd8oooG 3.:i<Yio.:ioooG JM0930000680 p,NPV) = $18,112/$46,000 = 0.39 .
.3MMOd8oooG 3.:i<Yio.:ioooG JMO'?j0(30068G .3(){!?060000
$22,659/$58,000 = 0.39. 8o(Jb0!:!?"3"!:!? o8oG.:i, MM8 .3(){!?06QDooG b.:i'hG .:id3G 3.:i<Yio.:ioooG
JM0930000680 ($9,000/$12,000 = 0.75) 3o{!?MO .3PiMod8ooG, MM8-
()8 30 60006 <YioGJoG b.:i<YioGbl>, .:.8 G.:i5.:i<Yi8MM b.:i'hoG
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-E
$20,000 -$17,298
$60,000
-E 30,000
40,000
40,000
2
3
4
- 8,724
151
9,108
-$00,000
70,000
-E 50,000
60,000
60,000
5
6
7
17,682
26,255
35,514
80,000
-E 70,000
80,000
8
9
44,088
52,661
NPV = (0.30)(0.30)(-$17,298) + (0.30)(0.50)(-$8, 724) + (0.30)(0.20)(-$151)
+ (0.40)(0.30)($9, 108) + (0.40)(0.40)($17,682) + (0.40)(0.30)($26,255)
+ (0.30)(0.20)($35,514) + (0.30)(0.50)($44,088) + (0.30)(0.30)($52,661)
=$17,682

408
 14.

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(0.30)(0.20)($35,514) + (0.30)(0.50)($44,088) + (0.30)(0.30)($52,661) = $22,725.

,:,8c,3<>M<>(Q, o8o6!Q<> o'bM!Q()O<>, MMCQOb<>(3

8o&(Y) 3oooli 'Boca<>boo<>'Bo. MobJob
8o&M3ooob

Aggarwal, Raj, and Luc A. Soenen. "Project Exit Value as
a Measure of Flexibility and Risk Exposure." The
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Amram, Martha, and Nalin Kulatilaka. Real Options:
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Hertz, David B. "Risk Analysis in Capital Investment."
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Invest: Investment Under Uncertainty." Journal of
Business 65 (1992), 1-29.
Journal of Applied Corporate Finance 15 (Winter 2003).
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corporate strategy.
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Applied Cmporate Finance 5 (Fall 1992), 92-100.

409
 5.
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Sequential Selection in Capital Budgeting: A Shortcut."
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410
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Part V of the text's web site, Wachowicz's Web World,
contains links to many finance web sites and online
articles related to topics covered in this chapter.
 a a o:Joo

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John R. Ezzell and R. Burr Porter. .. Flotation Costs and the

and Quantitative c\naly;,is I l (September l97h).

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Classification
Codes - OJM5M8o()Mo
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8f'10ooob 0060J3omob .361f'1od0ob b0J(Jm0610 l.QO!.QO
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06 momj8ob 061006 f'l.30610Goooob 8b003b
0o.3oo<lo. Jf'18.306oob 06 Jf'18.306oooob l.Q0!.QOD60 bob0o8()61o 61obJob
b0bo0mom, 8b003bo0 .361f'1od0ob 61obJob b0bo0mob.
l.Q03()<l30m, (i)f'18 jo8o(J(i)o Jf'18.30600 (Jd61030 jf'16ooob Clod860b.
610l.Q006 0(i)boof'lob (Jd(i)030 Jf'16noob Jf'18.30600, 30i}(i)f'1006
0dGonoom, fi306 80(i)0030Q;? 0b::imo Jf'l8.306oooob, 06 80mo
cnob, O:J00 l.Q0 000 008f'130tJ:J6fYlm 15.11 61f'18 .j(i)(Ylod0ob 8f'1oooob
0060J3omo. U?0080bbf'1361om, 61f'18 8f'10ooob 006"J3omo 061 0(i)ob
jo8o(J61o Jf'18.306oob 8f'1 00 oob 0060J3omob <lob0008obo, 061080U? 000
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l.Q0!:Q006om, 00'b0(i)o jo8o(J61o Jf'18.306oob .3f'1006GO(J61 (Jd61030
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8%, 8r'10000 b0J(Jm061 .361(Yl::Jd0obm3ob oj6000
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0800f'18 16% oj6000, 61f'10f'161G .3(i)f'1:JJ0ob 8f'10ooob 0060J3omo.
b0608()<lM Jf'18.3060 0oob 8f'1dno60. R30 6 (J6l.Q0 <J 030 G0l.Qf'1m 8f'J 3doo6f'1m Jf'18.3060 0oo
.361f'1od0ob 8b003bo oo'b6obom, 06(Q(Jb()(i)o-
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f\306 00(i}80130!Q805m J030&0r2.'ol.i li0M(JJ0()Mol.i 006l.ib30300000Gm3ol.i oa00li
006l.i0'bc:;3Mob 8'b0l.i. oli J0ffiQ([J00 J03o00r2.'()Mo 0j003ol.i Clo930baoob 801Q(or2.'ol.i 30M0(JQ([JOom
80!Q0b0b0(Q[JOOl.i fl0m3r2.'om; 001r2.'01li, f\305 J30r2.'09JOJ0(3Mli 3()Jomoom O[JQ(0800li, M018r2.'[J00(3
006bo<ti()r2.'0 oj5ao0 80-17 m03Clo.
J01830600Clo f\3o()r2.'0oM030 0j(.3ooli 8010aoob 801mb0135or2.'o 0060J3omo 930606li(JM
r2.'030MO'.Siiom (,,r2.'030MOji;()r2.'o" J01830600, M018or2.'0G otiofiaoli 00M03601ooli Golibli) 0Moli
Ri = Rr + (R,,, - Rr)Pi ( 150. 1)

li0Q(0(3 Rr= ()MoliJ01 0060J3omli

R111 = 801l.i0r2.'01!!!6or2.' 8010000li li000'bM01 301M0<aor2.''bo
Pj= r2.'030M[Jji;(Jr2.'0 J018306ooli b0J(Jffi0MO J0d000r2.'oli oa00mo 006li0'bc:;3M(Jr2.' GoG00-
8(JM MObJli.
14
150.1 805001r2.'ao0 CJ 0t.i0dr2.'010 0G 030 0 08010Li0b01G Clo8!!!a 8 600M0Q(
= Rr + (R,,,- + (B/S)(l - Tc)] (1
li0Q(0(3 Pju = 0000mo 00'b018or2.'o J018306ooli b0J(Jffi0Mo J03o00r2.'ob Gob0o8(JM MobJG
930606li()Mo r2.'030MOji;oli 0M0Mboo01oom (0000 m(J J01830600 8mr2.'0060!Q !Q0930-
606Goo(Jr2.'00 li0J(Jm0Mo J03o00r2.'om 06 ur2.'030MOji;ob" 00(i}0Clo).
B/S = Gobboli0 Q(0 b0J(Jb"l0Mo J03o00r2.'oli Q(08(T)JO!QOO(Jr2.'0ooli J0109JoGoo60o G000'b(i}01
c:;oM00(Jr2.'00ob 30M0100000.
Tc= J(T)Md01M0(30(Jr2.'0 li000Q(0b0b0!Q01 0060J3omo

150.2 005001r2.'oool.i bor2.'0br2.'0 80!Q000Mom, f\306 'b(Jl.i00!Q 00300001, P1018 80100001.i

801mb0136or2.'o 0060J3omo G0J(Jm0M J030&0r2.''bo Clo!Q80o0 ()Mol>J(T) 0060J3omoli005 !Q080&0-
o(Jr2.'o 3(i}o800 oo'b6obiYlobJobm3oli Q(0 3Mo800 930606b(JMO MOUJOGm3oli:
'{lo61>Gl>';:,J<ilo-<ilol>Jol>
:i<ii08o<>

0j(3oob 306l.i0'bc:;3M(Jr2.'o 0000, pi 8(T)o(303li 01Mo30 MnliJG Q(.0 000 80M@.>030!Q 0iYloli
Pju[l + (B/S)(l - Tc)]

150.3 006@.>01r2.'000G bor2.'0br2.'0 00Q(0ooiYlom, 0M0r2.'030MOji;()r2.'o 0000 0j(.3oolicn3ob <lob0dr2.'010

439
 6.

pi r•
\ !
Pju 1 + (B /S )(1 -TJ

8M(308(JC'.'..'o 0.:.8Ml>.:.b(JC'.'..'Ooom R3o6 Clo03ode'.'..'o" 008.:. JM6JMo-

8(JC'.'..'o "DGool>m3ol>. (Q"3(J03.:.m, MM8 oo&.:., pj, j 'B"l>o.:.60
.:.Mol> 1.4; l>ol>bol>.:. CQ" l>.:.J(]Oli.>Mo Ji>.308.:.C'.'..'ol> i:Qi.>8MJOCQOO()C'.'..'Oool> JMO'BoGo-
0680, BIS, .:.Mol> 0.70 CQ" l>.:.0.:.CQ.:.l>.:.b.:.CQM 0.:.6.:.J3omo .:.Mol> 40% . 008.:. od6oo.:.

p l.4 =099
JU 1 + (0.70)(0.60) •

Ol(J R3o6 .:.be'.!.'" 03 l>(]Ml> oo8" 0.:.8Mtio6oo(JC'.'..'0 'Bo6.:.6l>()Mo

0.:.6l>b3.:.3oove'.'..'o l>oi:Qoi:Qom, R3o6 0 .:.8M3otio6oom 15.:..3 0 .:.68MC'.'..'oo.:.l>. j 'B"l>o.:.60
0.:.8MtJ06ooom, MM0MM(3 R3o6o dMMOd8ol> l>ol>8o8(JMO oo'b6ol>MoUJOU 608(.JOO, R3o6
8M3ombM3m 0.30 l>ol>bol>.:. (Qi> Jild08ilC'.'..'0U (Qi.>8MJOCQ00(JC'.'..'000U JM0'?30(30068l> 0. 70-ol>
8.:.003Mil(Q 0.:.6l>.:. j 'Bill>o.:.60 . .:.8o&M8 (Qi> 'b(Jl>8oove'.'..'o oo&.:. od6oo.:.
M00(JC'.'..'OM00(JC'.'..'0 Pj = Pju[l + (B/S)(l-Tc)J
= (0.99)(1 + (0.30)(0.60)] = 1.17

ol> 008" (J'BM(Y) 0.99-'bo j 'Bill>o.:.60 8.:.0M.:.8

. CQ"o"C'.'..'o" 1.40 Mo(3b 3'b 0 MO"C'.'..'(]Mo, (J'BMM j 'B"l>o.:.60
Mo'bo(J8oClo, R3o6 Clo03ode'.'..'o" CQ"'bvl>8oo(JC'.'..'o 008" 'B"l>o.:.60
MMCQOl>"G l>.:.608(.JClM JM8.3.:.6o.:. otio6ool> l>ol>bol> 0 .:.6l>b3.:. 30 o(JC'.'..' .3MMdMM 8 o.:.l>, 3oi:QMO R30 6o
UilJ'()OlilMo. R3o6 .3oM30C'.'..'"CQ 0.:.63l>.:. "DGool> oo&.:.l> .:.M .:.Ml>ooMool>
CQMMl> l:Q" Clo8i:Qo0 .:.8 Mo 8 b3l> .3MM.3MM(3ool>m3ol>, MM8C'.'..'ol>
0.:.8MtJ0600.:.G R3o6 03U(JMU. OMC'.'..'M 00CQ000 i.>MOU 80.:.be'.'..'MOO(JC'.'..'O 008.:., MM8oc:!:>oG o.:.Ml>ooool>
mv l>.:.6o8va(Y) JM8.3.:.6o.:i 0.:.8MotJo6ool> l>ol>bol> l>.:.l>(]M 30C'.'..' .3MM.3MP1 8 o.:.l>.
CQ.:io8.:.bl>M3M0m, MM8 0 .:.6l>.:. :.JMMGOCQ(JM" (Ja 30 ol>, PiM8 0.:.8Mtio6oo(JC'.'..'0" J":.io-
8"C'.'..'(JP'lo .:.d803ol> Clo'B.:.l>oool> 8MCQOC'.'..'ol> tJ30C'.'..'" .3Mo6(3o.3o, 0ilM(Qil JMMdMMi.>(30(.JC'.'..'O 0"CQ.:.l>.:.b-
"CQOOol> .:.Ml>ooMool>.:.. JMMdMMi.>(30(.JC'.'..'O 0"CQ.:.l>.:.b.:.CQOOol> CQMMl> o'bMCQOOil
bM'?303.:.CQ oP'lm.:.CQ. 80-17 m.:.30 0"0"(36Mom i:Qi.>8.:.8ooom 6.:.JC'.'..'M3.:.6ooool>
ao'B.:.l>oo.:.'bo J".308.:.C'.'..'ol> l>8MVJ8(]Mol> 'b 00 .:. 3C'.'..'o6ol> 8me'.'..'o.:.6 Clo'B.:.l>oo.:.Clo . .:.8o8M8, l5.:.P18MCQ-
0060C'.'..'o .3MM(30CQ(Jflil ode'.'..'03" 80.:.be'.'..'MOO(JC'.'..' 008.:.l>, MMCQOU"G 0(33C'.'..'OO" l>ol>bol>
dMMdMM(30il 1 8.:.0Pi.:.8 OU i.>MOU 8bMC'.'..'M(Q 80.:.bC'.'..'MOOOOlO. (QO(QO 008ilU dMM-
(30CQ(]Mil .:.Mol> (Qi>(J801.:.3P1000C'.'..'o.

80-15 01.:. 300 (]8o8ol>.:.CQ 0 .:.8.:.b 3oe'.'..'CQ" J".308.:.C'.'..'ol> l>.:.Cl(J"C'.'..'(Y)

Clol5M6oe'.'..''bo (WACC), MM0MM(3 "DGo.38o6l>ol> JM080MO(J8'bo. ol>, Mil 01j8.:. (J6(Qi.>, i.>MOU Jildo-
8"C'.'..'0U 6.:.0M010 l>"CQ"G 8M(308()C'.'..'o" tl30C'.'..'" JM8.3M6o68o.
AdJusted present value
tAPV) - uM63nG8ooo"'
"C'.'..'8::JM6.:.8o(JC'.'..'O 01.:.6b8Mool> JM080MO(J8o .:.Mol>
JMMDd8nooG OD'1J"Gnoob 80mMCQo, PiM8oC'.'..'oG .3oM 3DC'.'..'"CQ Clo8M 03 m.:. 3.:.'b.:. l>8o(J.:.M8 l>. 8oooMl>8.:.. APV
8i)a>f'l!QO, 8omMCQ001" .3MMOd8ol> 'B(JC'.'..'"i:Qo 6.:.J"CQOOo 6.:.l5oe'.'..'CQOO" MM JM8.3M6o68.:.CQ: Md:)Mil(30(JC'.'..'o
6oJ1>!QDOob 'B(JC'.'..'"i:Qo 6.:.J"!:QOOo CQ" 'bM000M010 'B(JC'.'..'"i:Qo 6"J"CQOoo, MM8C'.'..'oooG 01.:.6 .:.be'.'..'.:.3l> .3P1Mod8ol>
i:Qil'Bo6.:.6l>oo.:.l>. ol> JM8.3M6o68ooo Clo'B.:.l>oo(JC'.'..'Oil .:.803.:.Mil(Q
Go301Qobobo!QM
APV = + f.1?"'13o6.:.6GaooG ( .52:i. 1)
06
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'1lo6o6Gnomo6
'B(JC'.'..'"i:Qo 6.:.J"CQOool> CQ"Cle'.'..'" 0803.:.M.:.CQ .:.Mol> MM8 0.:.6l>b3.:.3oo(JC'.'..'o CQOl>JM6&ol>
n8oboob !Q"G"b"t'i-
0.:.6.:.J3omooo 0.:.8MtJ06no(JC'.'..'O od6ol> JM8.3M6o68oo'bo. M.:>CQ0"6 MdOMi.>(30(.JC'.'..'0

:• Stcv. art C. in1plicari(rn:.:

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'(3(Je?.10CQO 6"J.:>CQ:J6o .:>Mob 8:J8"C!? MOUJ0.:>60, 30CQM:J
'(3(Je?.10CQO 6.:>J0CQ:J6o, obo6o CQOUJM680MCQ:J6006 8.:>((?.'.>e?.'O
d:J8CQ:J&6.:>oM.:>CQ:
· J018.30600 Tennessee-Atlantic Paper 0 06oboe?.103u .:.b.:.e?.'o
308Md300>30(QO bOM:Ji;JOO,
obo6o Dd3D8(Q[JOOM[Jono6
508Mj3om3ob bo3o(Qobob-
o(QM Cl38Mbo3r;:>0(Q06. 3!.i
bolii:J<;300 "0003!.i" 8ooio
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mo6bo!; (QOO[j 0 31iio(Qo6.
15.
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0 06.:>J3:J01001.
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APV = [i.<=t
CF, - -1co] + [i (I+Cli)Cfc)
(1 + k.u)' i=t kdY
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u.:>CQ.:>G CF, .:>Mob CQ.:>6:J 0 3Mob Clo8CQ 0 M8o 'B()e?.'"CQO foJ.:>CQO t CQM01b; ICO .:>Mob b.:>otjouo 'B()e?.'"CQO
80101b0136oe?.'o 0 .:.b.:.3.:.e?.10 .3MM:Jd8ob013ob; k. 11 .:>Mob 801 0 ::i6ob 80101b0136oe?.'o 0 .:.6.:>J3:J010
<(3o6.:.6b(JMO .:>M .:>MU:J6016ob CQMMU (801 0 06ob 8M01bM36oe?.'o 0 .:>foJ3:J010, 01() J018-
.30600 801e?.10060CQ .:>Mob CQ.:><(30606b::io()e?.'O b.:>J(J01.:>Mo J.:>.308.:>e?.1001 .:.6 ,,.:>M.:>e?.1:J3:JM:J.'.{G()e?.1o"); I,
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Cl::ib.:.6.:.8ob.:.CQ. 601e?.1Mb, 0 08Mod3001000 6::ioob8o::iPSo ::i8oboou P1018 8030CQ001
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06'ti0160u, M018::ie?.10G ((?OMU 2
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be?.'OU 8.:.6doe?.''b:J. 8t<J01bt<J36oe?.'o 8M 0 :JOOU 0 .:.6.:>J3:J010 u.:>3()01.:>M J.:>.308.:>e?.''b:J
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o8o6CQ.:> .:.be?.1.:>6CQ:Je?.'O ((?OM:JO(Je?.':JO.:> 006060
NPV = ±
t=l
4
$ 00,000 - $2,000,000
(1 + 0.13)'
= -$80,400
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.3Me?.108030 .:.PSoG C!?""'Bo606u01b J.:>.308.:>e?.'()Mo G00630b80Go01 .3M01od8060 .50% bobbo01,
fi1.:>CQ 0 .:>6 .:>Mob Gobbo J018.306oob 801e?.1006 J.:>.308"e?.'CQ"606CQ:J60'bo. JM8.3.:.6o.:.G
Tennessee-Atlantic Paper d:J(Jde?.100 obobbMG 1 8e?.16$ 10% 0 06.:>J3:J01001 .:.b.:.e?.'o e?.10060Mob
.:>btJM6ob 6.:.6'oe?.'oG CQ.'.><(30606b06ob013ob {CQ.:>60t1if1060 CQ.:><(30606bo60 b!Qo6.:. "DGO:J6ob <(3016CQ:J6ob-
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0 06803e?.10160Clo .:.8MM®o'boo()e?.10 0d803ob ((?Ofi106(Je?.':J6.:>G0106 [Jfi101.:>!Q). 01() JM8.3.:.6oob
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40%-ob, 8306 .:.be?.',:, 0 30d3b U.:>J8.:>filoGo 06<(301M8.:>Go0, filM8 0 08M300130e?.10101 b.:.M 0 :J6e?.'ou
0 06.:>J3001om 0 08016'3o(Je?.'O Q;100[JB3MOIQl>b Clo8MG030e?.'o CQ.:> 8.:.mo
0be?.106!Q[le?.'O C:OM::JO(Je?.':JO.:>, d::J!Q0o06o 6083060600 156.1 (4) l.130800 36.:.b(Je?.101601,
61018 b.:.61 0 ooe?.'ob 0 060J3001ob !Q"oo 0 36'1o!Q.:>6 !Q"G()e?.'o Cl::i801u030e?.'ob .:.be?.1.:.6-
!QOe?.'o c;>oMOO(Je?.'Oo.:. ao.:.CQ 0 :J6G 132,000$-G.
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APV = - $80,400 + $132,000 =
441
 OMM<Qo 01'1oli oo<Q6oal'1o, 1'1M8 .31'1Mod@.lo f\06li 8oli0e;ooo <Q0 80li
8Mol.i8o6Ml.i 0(Jo()60.
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0doooli 0 08Mo3oooli013oli. fl306li (Q03()'83001, 1'1M8 Tennessee-
Atlantic JM8.306008 40,000$-001 (Q000o3Mol.i oo8<Qc,M8o o8oliooli (Q060b0MS(:00001
dOMMOt:JOOo). oli (Q060b01'1S(:t:J00 08001'10006 JM8.306ool.i
60J0<Qooli, 08 03 01'10(!? bQ?oo0

APV = -$80,400 + $132,000 - $40,000 = $11,600

dMMOd@.lo 01'1ol.i 8oli0e;ooo, 80 01'108 3o<QMO o8ol.iool.i

(Q060b0MS(:OOOl.i 0M 01'1liooMOOl.i (QMMl.i.

W ACC 8[j01f'l!:QO APV 8[JOJMl!;?Ob :Jo(i}ob.'306)

f\306 .31'1Mt:Jd@.loli 006li0 'be; 31'1oli MMo 0'b0. 01'1010 8001M<Qo ol:Jo6ooli
JM8.306ooli (WACC) (!?0 8oMl'1t:J 06<QM00 .31'1Mo-
d@.loli (APV) OO<QDoli. APV 01'1ol.i
'bMC,0(QO oolio, 601-\306000 O::JMl.i w ACC 8001MCQOli013ol.i. APV
8001M(QOl.i (Q0li0(3030(Q 8oli l.i001:jOl.i li@.>0@.>0000, 80001'1li80 80()010010 'bMC,Ot)M010
ooli0boo w Ace 8001M<Qoo. 8oli li@.>0@.>00Li 8Ma 83 0 l'108<Qo608o CQ0CQD00010 CQ0 Li000600e;8CQOoM
16
0 08Mb80(JM000.
063oli@.looooli 001'18M0Mooli0li, 01'1lio0Mol.i 063oli@.looooli CQ0 <Q0<?Jo606lioooli
(JM01ool'101d80CQ000. doM0010(QO oolioli 8obo<Q3001, M0(3 (QO(Q b06li 0601'1fl(J6ooli JM8.30600
ool.i0008ol.i0(Q 8(J(Q8030 liol.ibol.i JMt)<?J0(30t:J6@.ll.i (QMMol.i (Q0 063oli@.>0M000l.i
0J001ooli (JJ30 dMMt:Jd@.loooli 8lic,03li dMMOd@.loooo, WACC 8001M(QO
ooli0008oli0(Q dMMOd@.loli 'b(Jli@.l 0e;ool'10li. 801'1@.>030CQ MM8 001d30li, <?J0606l.i(JMO
MOl.iJO (Q0 oo'b6olil'1ol.iJO ooli0008oli0(Q 01'1ol.i (QMMol.i 01() JM8.30600
0 06lib303CQ000 8ol.io 0060 CQ0<?Jo606lioooli l.i()l'1001oli 0 06 06/CQ0 0Jo01ooli 0630-
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James Miles and John R. Ezzell, .. The Weighted Average Cost of Capital, Pcrfccr Capital Markets. and
Project Life: A. Clarification." Journal c<F Financial and Quamitath·e Analysis 15 (September 1980). 7 l 9··730:
Donald R. Chambers, Robc11 S. Harris, and Jobn J. Pringle, '"Treatment of Financing Mix in Analyzing lnwstmcm
Opportunities," Financial Managcmcnr 11 (Summer 1982). 24··4 l; and Robert A. Taggart .Ir.. "Consisten! Valuation
and Cost of Capital Expressions with Corporate and Personal Taxes," Paper, National Bureau of Economic
Research (August 1989).

442
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448
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$34.25 CQOl>J"'6®nC\1000 18% = $14.97,

18% 19%
1-5 S 5.26 s 5.13
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l
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x $0.23 x = (0.01) x ($0.23) = 0.0010

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451
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EBIT = P(Q)- V(Q)- FC = Q(P - V)- FC ( 16. 1)

G0(1?0G EBIT = 8(") 0000 boM 0Dor:::iob 0 06oJ3om08U?D (1?0 U?00003cYl08U?D ((").3DM<>Go(Jc:::>o 8(") 0000)
p = DMIDD(Jr:::>Ob f80GG
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FC = '8odbocYloo(Jr:::'
00() 0Dor:::i(")oob ooM8or:::ioo (Q8E) EBIT 0Mob 6(Jr:::io. 0808(")8,
0 = Q8 E(P - V)- FC (1
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456
 QBE $100,000/($50 - $25) = 4,000
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Cl[J81'.Q[J0

U0CQ0(3 SBE = CQM6ou

FC = CQ<>Ei<>b.:>MJ<:.[JOU
VC 8 E = (Q<>60b.:>MJ<:,[JOU

u080(Jb<>MM(Q, f1306 030j3u [)Pl010 O[J0(303U MM (](36M6U - SBE

1'.Q<> VCsE-u. <>Uo010 .:>Mob b<>6o1'.Q6ooMMCQ, <>fiib[J6Mob [JM010 bo6lbo,
008M30l:J[JOM01 16.4 oU[JOl 0<>1'.Q<>tJ3<>6001,
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06\'(3030 R3[J6 (VC 8 E/S8 E) JM[J9J0(3o-
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JM[)9J0(30[JD0001 O[J81'.Q[J0 16.5 f13[J6
S8 E = FC + (VC/S)S 8 E
S8 dl - (VC/S)] = FC
SBE = FC/[1 - (VC/S)]

f13060 f1093b(J(l)OU JM8.306oob

CQ<>60b0P'iJ<:,[JooU 00l:J01'.Q3[Jom.:.6 JM[)9J0(30[J60o 0P'iou 0.50 8o(Jb[JCQ"3"Cl.?
(,0tJ01'.Q3[J6ou 08o(lyM8' 16.6 008MtJ[JO[J0001
(0.:>tJOl'.Q3:JOOo} R3[J6
SBE = $ l 00,000/[1 - 0.50] = $200,000

50$ 8obo1'.Q3001, ou 200,000$ (0080CQ3[J6Clo) ClooG03u 4,000

(P'i<>M(Q[JOM6P'io3) MM 0MM(3 [JU 01'.QM:J
[(4000(50$) = 200,000$].

457

MdQM<>()OCJO(JC::O
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a<>8Pio<>60 <>(\)oarom 0 <>1;1013?33oob (.36)"'C!?(JdGoob <>6
M<>roO?o6roo<>ao) "8o'b6roo(\)030" (EBIT)
(\)0Gb3ou 8oboc;mo<>C!?· 80M803013? C!?o()8o8om md3360 8o'b6roo(\)030 <>6
(Y)0Qb30 13?<>6<>b<>6)'.?G[JOb (FC)
.°3<>b(Jb:JOO od630<> md3::i60 8o'b6rooM030 8otJOC!?3:J"
oob - .3M"'IJ'.2(JdGoob Q'.2<> m<>6broo(Y)o3<>13? - M<>G b<>:joMro<>
md3::i60 8o'b6roo(\)030 Moob3ob
ID M.3::JMil(30(JC:::O O<fl16[.J
<>13?M[J R336 3md3om, Mro8 .3ro836oovl'ilo 'bo 0<>3C'.!:'36<> <>Mob ob, 6)M8
0<>tJ013?33oob 00333b .3(Y)ro.3roMGo(JC'.!:'<'>!3? 838
8ro 03o<>ao (<>6 00 0 300Clo). J"'8.306oob ro.33M<>Qo(JC'.!:'o 8M03oob
b0'bro8b JM8.306oob 0<>1;1013?33oob 8o8<>Mm 30MC!?30<> M.33t'1<>(30(JC'.!:'o
Q?M6[J (DOL). JM8.306oob 13?M63 00(\)8(Y)3oob (06 o<>tJ013?33oob)
13?ro63'b3 80<Yi803<>13? <>Mob 8M 03oob
O<iM8M3oob (06 o<>tJOQ'.233oob) 8o8<iMm, G3C'.!:'ob 8M33oob.
08 0 3<>M<>13?,
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M."l()M0(30CJC!:'0 1!!:'030MO:Ji;OU !!1"'6()
:J(i)01ea68vc:>n G3c:>nc:>ooo
(DOL) bC>M801oovc:>o (<>6 8"80!l?CJC!:'0} =
l>ot'i\80100000 (06 3ouo!l13(}000)
Q OMOlOCJc:>ol>m3ol>
JMM(3068vc:>n G31!!:'0C!:'000 (16.7)
JM8.306oob o<'>/:J013?330Clo 80806'lm, MMoMMG DOL-ob
8ob313?3om, od63o<i 306bb30330(JC'.!:'O O<i6'l8M3oob (06 o<>tJ013?33oob) 13?M63'b3. <i8o8M8,
R336 tJM33C'.!:'O'l30b o3ffOM13?30<> 803-vmomMm 00618M3oob (06 o<>tJ013?33oob) Q:2M63,
DOL <>(\)ob 0<i'bM8oC'.!:'o - Q 8ob313?3om.
(\)roO?oboo otJo6aom 16.7 DOL-ob JM8.3.:.6oob 808C!?o60l'ilo
o"l:J013?3;:Joob Q:2.:.08.:.bbro3!'il::im, l'ilro8 md3a6 EBIT-Clo C!?O o<>lJOQ'.2330'80
.:.8mbb6.:.b
oaoob b0.30Mob.306)f"l13?. .'3:JMOf"lQ:20b
e,.:.8m1.m6aoo R3o6 Jm8.306oob DOL-ob 8oa61 8o8C!?o6.:.6)o
booM<>Q'.2 d63C'.!:'o<> .3oMQ:2<>.3o6'l 16. 7 8(JO<>MO<i DOL-ob 08mb0bb6:.JC'.!:'"C!?
o<>tJOQ:233oob 13?f"l63'b3, M<>13?5<>6 EBIT-
Clo 06) od6oo<> 8M6<>038013?<>Ei. 08 0 -
3061013?, 8o(Jb313?<>3<>13? o8ob<i, 6'lm8 16.7 <>Mob ()<>13?<>8otJ3380 DOL-ob
!!?" 5003oobm3ob, 80618030 'Bm1118(JC'.!:'3oo
16. 7 ()'?JMf"l DOL-ob 613<>C'.!:'(JM0
DOL = Q(P -V) Q
Qo'""'O'IJ<'.;'O Q(P-V)-FC (Q-QeJ (16.8)
 16.

S -VC EBIT + FC
S - VC - FC EBIT (1

16.8 J0M(l,0CQ O.'.).'.Jl.>0008.'.)00 P1d.'.)M000(Jc;_io c:'.!.'.l3.'.JM.'.Jftol> CQP16ol> 008P106 00P10Cl.'.)00l>

.'.)Mmo dMP1CQ(JOOool>m3ol> 06 .'.)Mmo dMP1CQ(J00ool> 8lfot'18P1.'.)0.'.)c;_io JP18.306ool>m3ol>. 1 o0o
8P1ombP13l> 06<(3P1M80oool> 8bP1c;_iP1CQ (T)M Dl:J0MP1l>, Q CQ0 Q8 E, MP18c;_i.'.)ooo CQ0!:Qo.'.l6oc;_io0 .3P1(Tl-
CQ()OOool> .'.JMm.'.J(Jc:'.!.'.Joom. 16. 9 8.'.JP1M.'.J 8bt'103, 0P1ol> d0c;_io06 8P1b.'.Jt'1b.'.Jo()c;_io
P1d.'.)M000(Jc;_io c:'.!.'.l3.'.JM.'.Jftol> CQP16.'.)l> 8P1l>0d.'.)060CQ 8P1030c;_i(Q0M 0P13060 JP18.306ool>m3ol>. o0o
0l>.'.l3.'.l 8P1ombP13l> 06<(3P1t'180oool> 8bP1c;_iP1CQ (T)M Dl:J0MP1l> EBIT CQ0 FC, t'1P18c;_i.'.looo CQ0!:Qo.'.l6oc;_io0
m06bP10P1030CQ.
CQ03()Cl30m, M(Tla f\3.'.)6 o3l>()Ml> c,063l>0 'bc::3M(Tl()) P1d.'.JM000(Jc:'.!0 c:'.!.'.l3.'.JM.'.JftOl> CQP10.'.J 00M8P1.'.J-
ool> CQ0 ()0l:JOCQ3ol> 5000 .'.)Mm.'.J(Jc:'.!Ol.im3ol> fi3.'.)60 dOdP1m.'.)J(JMO JP18.30oool> 80 00c;_iomol.im3ol>. 16.8
008P1:.J.'.)6.'.)oom, fi3.'.)6 03003l>

DOT = 5 ,000 =5
(5,000 - 4,000)

DOL 6,000 =3
- 4,000)

CQM80bl>M3<'1.'.)m, <i1M8 MMQ;i.'.)l.>00 00m8M.'.Jo0 00o'b.'.>ti1CQ0 5000-CQ06 6000 ::iP1mn-vc;.i08CQ::J,

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08330<'10CQ, 6100 OMMl> 0<'1ol> 00m8M.'.)6ol> (QMO::J 00()8.'.)6c;_iP16ol> 8om
(Qv60c;_io0 P1dJJM00o()c;_io 0bc;_iMl> 8()0.'.>Mol> JM8.30600 8ol>
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nd6.'.lo"' 8ol>o (Tld::JM<>oo()c;_io 8M31Jo::i60 00ti18(')::io0on 06 8"'1:Jni:i;>3.'.)6Clo

B\)6'8f'l0o7Jt::JQ !!;?(! f'l;)06io<3D7lc:Jo

Moo<'>ooocic:'o 8cri 0 ooo !!?" .. 6iof'l1J;?06f'l00 8f'lMo0 !l?f'l60
01'3o<'iooovc:'o 0 $-100,000 0.00
!!?"'50 oo<'i8f'"l:JOOb 1,000 -75,000 -0.33
(0080CQ33ool>) bb30(!?0bb30 2,000 -50,000 -LOO
!!?"'6:J'bo R30 6o 3,000 ...:25,000 -3.00
8030(!!:'omol>013ol> QBE =4,000 0
5,000 25,000 5.00
6,000 50,000 3.00
7,000 75,000 2.33
8,000 !00,000 2.00

459
 6.

oll 6006031.l, (i)f')8 1 .)(i)M(3D6&oo6o G3c::.'0c::.'DOO 80l:JOf.Q3:.JOOO 5000 DPl01D()c::.'0b 80l:J0f.Q30U

8f.QoM80P'ioP-100f.Q06 00303l> 5 dPlM(3:.J66oo6 G3c::.'0c::.':.J00U EBIT-oo. '?PJ60(JM0f.Q,
6oool>8oo(i)o G3c::.'0c::.':.J00 80l:J0f.Q3DOOO 5000 D(i)01D(Jc::.'0U 8f.QoM8oMDMOOf.Q06 00303l>
.3(i)M(3u66'Vc::.' G3c::.'Oc::.'Dool> EBIT-oo, (1)00 0(i)ol> 5-'.ii:::i&i (JC(JPlM f.QOf.Qo. 80 0 0c::.'0010f.Q, 3
.3(i)M(3:.J6&0060 Jc::.'[JOo 801:JOf.Q3Dooo 003031.l 15%-006 Jc::.'Dool> EBIT-oo f.QO 4 dMM(3D66oo6o
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IQ<>
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o 0L>0008ol>o 8061d6M0Dc::.'rrio0 50(i)8Moool> (0 08of.Q 30 ool>) 83 c::.'oc::.'aool> 80806101, P'iM 0MP'iG
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30 oL>) oMP1oL>.
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b[JM60c::.'0f.Q06. DU 600603G, (i)f')8 a0dc::.'ODM:JOOU D'BDd6n MdDM0(30()c::.' 8M():JO:JO't>::J o08M03D()"
c::.'o.:i 'Bodllo&ioo()c::.'o f.Q060b0(i)'.ii:DooG 061Goorrioo01, 61M8oc::.'oG 88 061f.Qoo0 8061&030 1-1
f.Q08MJO(QD0(Jc::.'::JOOU 8o8oM01(Jc::.'D0001 o01:J0f.Q3DOOU 'bM(QOU ()0()Md::Jc::.'::JOOU O::JU00080Go(Q b0(J()D-
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f.QOf.QO C(JOJUOM::JO(Jc::.'O f.Q060b061'.ii:ooo, od600001 f.Q000c::.'O DOL, 01() ouo6o 08(J003aoa6 J0M()0(Q
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O(Jc::.'0 f.Q060b061%00001 od6::io0 (J'i>06180'b0610 DOL, 01() 080 08()003::iou 8ol> bo(J 0Doc::.'rriool>
2
bDM6oc::.'0106 0bc::.'Ml>.

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G3C?.'Oc::.'D00U M.3DM0(30(JC?,1 8M3ao0'bD. 'bMo:Ji\DM, 08 oofoGooMO (3M(Q6ou G0.30G(Jbf'l(Q, JM8.306008
o::iG...,dC?,>M..., 30f.Q001:J306MG (i).:io8D G3C?.'OC?,>DooG 30Ja01::io0 8ouo 8...,l:JOCQ3DooG 06/f.Q0 f.Q...,5...,b...,(Y)'.li\::JooG
ll6"1(JJ6(1Mou .3Mc::.'060J0Clo. docYlom...,f.Qo oDGoG 8obDf.Q3001, JM8.3060Dou ...,"1 8MuoM601 8(JCl0M00
f'ldDM(>(30(JC?,10 c::.'D3::JM:J'.)i\OU f.QM6ou dOMf'lO::JOClo, M0f.Qo06 08 U06(J0(300Clo, ()01:J0f.Q3::JOOU
a8 oM::J ci088 0MD008 ClaG...,dC?,>M0 008Moo3of'lll f.Q...,6...,J0M0o.

460
 16.

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3 I
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2 I
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dMMtQCJdGool>
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l>v.3n6iolo.3oM"1tQ
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i:Qv
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6iv"'i:Qn60103ool>
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Oo{b6nGMol\3n -
- 0v6(Jl>v 'bl:!:!36iac:::>"'1'v
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(EBIT)
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 al> 3.:.(118030.:.. 0 .:.3M.:.6 0.:.Moano.:. DOL, [(EBIT + FC)/EBIT]-ol> 0.:.3Mttn6noom,
JM8.'3.:.6ool>m3ol> Cl?" aaa!.'!?Do Clno(l'\fln3.:. JM3.'3.:.6o.:. ()C!?OC!?QUO DOL-om.

$1,000 + $7,000
DOLsrn,oooorsa1., = $l,OOO =8

- $2,000 + $2,000
DOL SJl.OOOofsalcs- = 2
----'---
$2,000
$2,500 + $14,000
2F: DOL519,sooorsa1.,, = $ ,500 = 6.6
2
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l>ot!?oaw'bo bb3"t!?"l>b;p CQ<><(3o5,:,5booom, oo\Q306" <>doon6ob
'l3o6<>6uofl 0onb
b'(J(i)b 8f'lo'bo<Qf'lb CQ.>8.>0ooomo 5 008\Qooo b,:,80 CQ<><(3o5,:,5bo6ob 303-
Gl8JfleJd8CJM;:JOnl> 80CQ<>6 oMmob 3<>801uo6noom. Jf'l8.3<>5o,:,8 CQ<>8.>0o6omo CQ<><(3o5.;5bo6<>
'b;:i8""d8;:inwooG 060c::>n'bo. ( 1} <>dooooob 3<>8f'lo3ooom, (2) 12 .3Mf'lGo50o<>5o 3<>6<>J3omob
60ci3aoc::>Mool> 6;:ifll!lJoc;:>o 8df'l5o bobbob <>5 (3) <>dooooob 3.>8f'lo3ooom 11 .3Mf'lG050o<>5o
oo;:il>oo.>8000 EBIT·ol>
CQ030CQ05(QOO'J. 308018'()0<>3oonoo JMOCQ00ob b.:>M'.Ji:08!Qo {Q'> (Q<>oo33M.:>8!Qo
ol>om (QM6ol>, MM8c;:>ob
8nbo1Q3om00 EPS oPimn !:!?" (EBIT) .:>Mob 1.5 803M08 ob 30o'b0M!Qf'lb CQ.:>800ooomo
030300 Jo.3oe"c::>"G """'" 'Bo606b0Mo6om 2.7 b030CQ.:>b0b.:>!Qf'l 3<>60J3omo <>Mob 40% CQ"
(06 P1081Q;i6080) 08ti<>8<>CQ 808(T)doo3<>00 200,000 0doo0. :JMmo
0c::>eoP160oovc::>" 0doo<> 3<>ouoCQCTlb 50$-.:>CQ b0'.Ji:<>M01 oom030 'booom 'Bo606b'()Mo 0Mflo306ob 8obo<Q3om,
G0 Pivd8vfl0Gm3ol>.
3.:>CQ<>30 bMdGof'l 'bM(Q.:>Oo 1000,000$-om.
EBIT-EPS 06 fl306
3oouoom oMm 0doo0 'ho EPS, EBIT-ob 'b01300Mmo .3o.'3f'l00moJ'()Mo
CQCTl6obm3ob 008CQ030 308f'l80606om:

EPS = (EBIT - I)(l - t) - PD

NS (16.10)

U.:>CQ<>G I = dM0100600
PD= 0dooo6ob \Qo 3o<Qo5<Qo
t= CQ.:>oo 03Mob 0<>foJ3omo
NS = 8o8(T)doo 3<>oo 0dooooob M.:>f'l!Qo50160b

CQ'>3'()030m fl306 33b'()Mb 30001\Qom oMm 0doo0'bo M<> 3.:>8f'l8'()003000 od6000 CQ.:>800ooomo
CQ<><(30606booob 0038ooob b080 8obo<Q3om, O'l'() EBIT ou(T) 2.7
6<>fl3060000 16.3 CQ.:>080bbf'l3Mom, ('i\018 dMf'lQ05eo bobb'bo b.:>M'.Ji:oooo CQ.:>0033-
M.:>8!Qo, 0fooob \Qo 3o<Qo5!Qooo 308f'lod 3om 000 CQ<>oo 03 Mob oo8CQOo·
OOCQ00"CQ, <>dooooob 308018'()00300000 (EACS)
bobbob 8obo<Q3om, 30CQMO 0dooob
&03ob 8obo<Q3om, 08 'B'>d&ob 8o'(Jb0CQ"3"CQ, Mf'l8 0 <>6.:>J3omo bobb'bo <>Mob
0dooob CQ030CQD6!Qob 0060J3omm<>6 OOCQ<>Mooom.
EBIT-EPS &M.:>'(30JO. 16.3 06<(301M80ooom, fl306 0303f'lm
EBIT-EPS 0M.:><(30JO 3li10cs0Job 8b 0,:,3b<>(Q. df'lMo-
b,:,'b'bo fl306 8f'l3oo<>b b.:>M'.l<:08!Qo {Q'> (Q'>O:J33M.:>8!Qo {Q'>
b0'b'bo B30 5 0Mm 0doo<>'b 0. Q?'>'Bo605b 0oob
f\306 '()5Q?.:> bo01Mo b<>'bo, M018 03b0bf'lm EPS \Q'> EBIT-ob
(Q015oooo. fl306 03ifoM(Q:J00 f'lMO 8f'l600080-
oob O:JCQDoo <>Mob EPS EBIT-ob
'b01 000M010 .30.301eo010J'()Mo (Qf'l6ob013ob. EBIT-ob 2.7 (!?f'l6ob013ob, 16.3
fi306 M018 oMm <>dG00'bo 008f'l8'()00300000 .:>Mob 5.40$, 6.30$ CQ'> 5.35$
<>dGoob013ob, bobbobm3ob CQ<> <>doooai Q?'><(30606booob
fl306 80Meo3.:>(Q 08 (Qf'l5ob oli1mo '>dGo.:> 'ho
EBIT-ob 2.7 CQCTl5ob ooli0008ob0CQ. 0od6oJ'()M'>CQ, .:>M <>d3b EBIT-ob
CQ<>b.:>0300 CQ016ob <>8f'l3oli1flo3m EPS 3M<><(30J'bo ali1mo EBIT-ob CQ0160 J.:>M-
300, Mf'l3f'lM(3 8CTl8C!?o35f'l, 803M<>8 fl06b 800'>\Q b030M0'(J(Qf'l 06 EBIT-
ob C!?016ob 0MfiQ3<>b <>d3b 'bf'l 0 .:>(!?o 30Q?MO bb30 CQ016ob
0li1flo3<>b.
8001Mo 801foG08000 - 8ol>o 308f'l - Mf'llQOb'>G
EPS <>Mot 80Meo300, M018 EBIT Q?i><(30M<>3b Q?<><(3ofo6booob
(!?.:>60b.:>M'.Ji:b cso606b'()Mo 30380G0130G CQ'> 030 df'lMo-
b0'b'bo. fi306 0 08CTl3o::io6f'l01 16.10
b,:, 'bot o'>C!?'>J30mob 8obo!:f?3om, 80Meo3<>Q?

463
 f\3D'Zlc;>Oo1>1030 .>Mo3oc;iae.01>100'Zlc;io
QMO> <>dGn<>'bo U<>MoOOc:?OU 0dGO<i bOlibO 0dGO<i
0.:.a"'.:.60.:.Molloo<> li.:.80 8MM030.:. li.:>M03oc::>nli dMM(336i§oli
lib3<>CQ<>lib3.:. CQ" CQ<>oq 03M<>8CQ:J EBIT $2,700,000 $2,700,000 $2,700,000
CQ<>'lJn6"6li3ooli JMM(336i§n (1) 600,000
<>c::>l§OM6.:.1§0330001 a,.,,o:JO<> !!(<>OD83M<>8CQ[J (EBT). $2,700,000 $2,100,000 $2,700,000
b.:.Cln8Mbu3c:;>M 8"!!?"b"b"(l1:JOO (EBT t)x 1,080,000 840,000 1,080,000
8M830<> CQ<>O:J83MOU Clna!l1D8 (EAT) $1,620,000 $1,260,000 $1,620,000
CQn3n(l136CQ300 <l<iio3oc::>aoo<iino'::Jc:;> <>dGooo'bo (PD) 550,000
b3c:;>8nl.i.:.El3(l1"180 U<>Mo:JO:Jc:?O
fi3:J';:)c:;';JOM03 "dGooo'ba (EACS) $1,620,000 $1,260,000 $1,070,000
8"t1nCQ'::Jc;>o fi3o<ic::>:JoM030 "dGooooli
M<>"'(l1:J6Mou {NS) 300,000 200,000 200,000
<>dG°"'Ila {EPS) $5.40 $6.30 $5.35
-·----··

00631.J.:i 'br::3cY\03cn C!?" 08M3bli6ocn EBIT-G.

<>doooooli 008C!?oofoocY\0C!?
0 = (EBIT - I )(1 - t) - PD (1 11)
= (EBIT - 0)(1 - 0.40) - 0
= (EBIT )(0.60)
EBIT = 0/(0.60) = 0

C!?0080btif'l3cY\ 0m, cY\M8 .:icY\ .:icY\ti02iMoli 0cY\0 3ocn.:icY\o C!?"<tJ0606lioooli b.:icY\fa 3oo (.:icY\o
(Qi> i>MG (Qi><tJ06o6lioo<> 'bo). ;,8o6M8 EPS EBIT-oli (!?Mf'lli 3•
li3libolicn30G fi306 0 3<>j3G
0 =c (EBIT - I )( 1 - t) - PD
= (EBIT - $600,000)( l. - 0.40) - 0
= (EBIT )(0.60) - $360,000
EBIT = $360,000/(0.60) = $600,000

08 0 3<>M<>(Q, (Q<>oo 03cY\ol.i oo8(!? 0M8o b;,cY\fao 1-'bo 0;,8MJ-

li<>o<>(Q.)G;,b;,(Qf'l 0<>6<>J3ocno EBIT-G, Mi>G ;,8
b;,cY\fa3ooli (Q<>li<><tJ<>M<>3<>(Q. fi306 ()6(1?<> o3dM6(Qoli 600,000$, MM8 C!?"3<tJ<>MMcn dMM-
b;,cY\faooo, <>6() 600,000$ b(Q30<> b;,'boli o"C!?"J30CJli>.
<>doooli f\306 030d3li
O=(EBIT-I)(l -t)-PD
= (EBIT - 0)(1 - 0.40) - $550,000
= (EBIT )(0.60) - $550,000
EBIT = $550,000/(0.60) = $916,667

fi31J6 o"3tJ01'(lCJl <>doooooli (Q030(Q36C!?ooli 1-'b3,

o<>(Q<>liobi>(QOG 0<>6<>J3omli, cY\018 803or::Mcn EBIT, ;,8 (Q030(!?36C!?o-
ooli (Q<>li<><tJ<>M<>3<>(Q. ;,8 03;,cY\;,(Q, f\336 0 33'ocY\C!?oo0 916,667$ EBIT-Clo, MM8 C!?"3<tJ<>MMcn 550,000$
"JGooooli (Q030(Q06C!?Ooo, 40% l.io0 <>(Q<>liobo(QM 0 o6<>J30cnoli (QMMli. JOC!?03
"JGrioooli (Q030(Q06C!?ooo 008Moj3omoo0 (Q<>oo 03cY\oli oo8C!?Oo 1
<>6() OoO 01:.106001.i (J<tJMf'l 806 801000<>!.i (Qi>03o3Mi>8(Q3, MM8 (Qi><tJi>Mf'lli olio6o, 30(QMO dMMGo6-
6oooli b;,'bol.J 0 <>(Q<>J33cnooocn (Qi>
0 <>8M8()Cl<>3ooocn ocY\cn <>doo<> 'bo EBIT-oli 'bM 0oocY\cno (Q<>iJ<>o3000 C!?0160Gcn3oli
EBIT-oli 8lio<>3li<>(Q), f\306 lioMM b;,'bli 8M6<>oo8ooli OMMOl.i.
JM8.3o6ooli Cherokee Tire ;,6 oMi><tJOJO 6;,f\306000;, 16.3
li(JM<>cn'b3,

464
 16.

uol>bo
"3"1o 3oc::>ooo"1a<'>CJc:;>o
7 ,/ R30CJc::>D<'>t'\030
€
CJ
,p 6
r.>
c
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6
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CJ
c
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3
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f) 2
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E
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r.> 1
EEBIT-EPS bOCJoo<'>c::w16ou <O

06 o6(QO<(JQMQ6UCJc:;'O
0
01'\o'BoJo !:!?0'1306"6l>oonl> 1 2 3 4
l.>080 (!?0808ooomo
0c:;>80"16o803ol>cn3ol>

16.3 U(JM<>ai'bo 11306 3bo!.Q<>3ai, MM8 c:,08M8()Cl<>306060 OMO> .:ijeo.:i'bo

uoubu.:i !.Q<> .:ijeoou !.Q<>80eo6oaio-!.Q<>cao606uo6ou
dMMOU ,)MOU 1.8 EBIT-Clo.4 al() EBIT ,)MOU 08 0J(300U
8Mo3Go8u oMai .:ijeo.:i'bo. 08 uoubou
OMai .:ijoo.:i'bo. .3Mo3-
.:ijoo.:iu.:i !:!?" .:ijooou Cl(Y)Mou ,:,(Y)ou 2.75$ EBIT-clo.
'bo3oai, .:ijooou (J'BMM
oMai .:ijeo.:i'bo. 08 .:ijeoou
OMO> <>deo.:i'bo. (QM80buM3Moai, MM8 ,)M 0MU06M6b 06(QO'BOMQ6-
l>oubou.:i !:!?" .:ij 8 o8ool> ClMMou. l>oubou
6.:ieo3.:i !.Q(Y)8060Mo6u EBIT-ob !.QM6o'bo !:!?" OMai .:ijeo.:i'bo 8()!.Q8030
Go!.QOIQoai, J::JMdM!.Q 95 80 6eoai.
8.:iaia8<>0oJ()M<>(Q
!:!?"'Bo6.:i6u 86ou MM 8aai(Y)!.QU ClMP'lou 8.:iain-
8.:ieoJ(JM<>!.Q 16. 1Q 0 .:i8MtJQ6Q6oai
EPS-ob c:,08Mu0b3oai !:!?" Clo8a?oo 08 OMai806oaiai06
Clo8!:!?oa6.:ioP'l.:i!:!?

(16.12)

U0(Q0(3 EBIT1.2 = EBIT-ob (Q0'?.J0000bo6ou MM

80aiM!.Qb ClMMou, 11 38 6 03 .:io6eaP'lol>o6l> - 08 Cla8aib 383 .:iCJo !:!?" 88-2 8oaiM!.Q06o
11, 12 = .3MM(386&G !.Q<> 80-2 !.Q<>'Bo6.:i6bo6ou 8oai(Y)!.Qob
8obo(Q3oai
PD 1, PD 2 = .:ijeo.:i'bo CQ030CQ86CQu CQ<> 80-2
CQ<>'Bo6.:i6bo6ob 8oai(Y)CQ86oai

465
 t= b<:.30CQ0b0b0CQ01 3060J3001b
NS,, NS2 = 0dGoooob 6i001U?o60100, od6000
CQ0 80-2 800101CQ00ob CQ0<(30606booob 8oboCQ3001
CQ<:.3()03001, 6i018 33b()Mb 006b0'br.;>36i0 0dG00b0
CQ0 bobbom CQ0<(J0606booob 001MOb fl306b 80006 03od6000

(EBIT1•2 -0)(1 - 0.40) - 0 _ (EBIT1,2 - $600,000)(1 - 0.40) - 0

300 ,000 200 ,000

.i:306io!Qo60CQ CQ<:> 803oc:;oo01

(EBIT 1•2)(0.60)(200,000) = (EBIT1,2)(0.60)(300,000) - (0.60)($600,000)(300,000)
(EBIT 1•2)(60,000) = $108,000,000,000
EBIT 1,2 = $1,800,000

EBIT-EPS b<:>CQ<:>G 308018()00300000 06i01 0dG00'bo CQ0<(30606boOob

01MO 800101CQObm3ob 0Mob 8b303bo, 0Mob 1.8 ob bOCQOCQO CJ08r>108CQOb
16.3 b(JM<:.0100. 08 0 306i0CQ,
306ob0 CQ0 8001080(!)0J(JM0CQ.
MOUJ'b:J. 0d08CQO EBIT-EPS R3060 o6<!!Jo6iobo Ol:J01 O'l'() M0
801()30CQ01CQ0 0dGooooG 8013000b 06i01 0dG00'bo
308018-vo030000001. fl306G 360bo01, 6i018 O'l(J EBIT 0filob 1,8 'bo80101,
G[Jbbo01 CQ0<(30606boo0 06iob 06i01 0dG00'bo
fl3060 30Go01, "1018
8013000'bo 06ioG 8016o<!!JoG ofil010 8b0filo. 8[J01MO JO 06ioG
cao606b(JM 0d3G MObJ'bo. EBIT-EPS 3fil<:><(JOJO 0M filobJOU (!?0'b-vu&oooG
080G 8o(JbOQ?030Q?, 'b013006i010 306'b01300?000. 06i01ob 8bfilo3,
cao606b()6i80 8060.i:o6i80 (J6Q?0 O[J<:>Q?<:>filMG 01fil
CJ016ioG, 6iM 0C'16io 8 0filob G0Gbo01 Q?0<(30606Goo0 0dGoom CQ0<tJ0606booob
G0.306iob.306i01Q?, EBIT-ob Q?M6001. 6i0G EBIT-ob 801G0-
CQ0160, Q?<:.3'()03001, 6i018 030 03'0filoooG oo6i<!!Jot0b, 8001
on801b3030, 30J001Q?Ob Gobbo01 CQ<:>cao606Goo0Gm3ob, mv
(!?0606iflo60 dOMC'100 06ioG 03030.
080G 306iCQ0, <(30606Gv6i80 v60?0 000ca0b01G EBIT-oG o6Q?ocao6io6-
Q?0Go8oG 6i01 001filG <:>Q?MO,
EBIT-ob fl3060 CJ0<(30boo0 06iob 2.7 J018.30600G oo'b6ob filobJ001 Q?0 EBIT-oo
00<'18Mo016om, cao606b(J6i80 8060.i:o6i80 ()6CQ0 000'80G01G EBIT 1.8
Q?<:>Go8oG 01v 06iob
od6060 GoGbob 008Ml:Jo6000. 8oM6io 8b6io3, 01() EBIT 06iob 01Q?603
'bo3001 Q?<:> EBIT-oG 08 Q?<:>Go8oG
06ioG <(30606b()6i80 8060.i:o6i80 ()61'.!?0 CQ<:><:>GJ360b, filM8 GoGbob 0filob
filobJo<:.60.
Ob 16.4 U(JM00'lOo, U0CQ0G EBIT-ob Mfilo
O<(J()d6000 16.3 G(Jfil00100 60fl30606 36i0'80JG. 16.4
Gv6i001CJ0 fl306 GoGbob CQo 0dGoooob
'bo. vG0cafilmbM 06i
06iGooM6b 6i018 EBIT CQ00Go80 08o(!JM8 fl306
Q?<:.3<:.bJ36001, 6i018 GoGbo ()6CQ0 od6ob M<:.(!?306
0dG001606ioooG 8013060'bo 06ioG 0filbooomo, MOUJO 06ioG filobJ006o
0filboo010G 6iM8 EBIT CQ00G080
08 00801b303000, cao606b(J6i80
Q?<:><:>bJ360G, fil018 bobbob 06iob 6iobJ0060.
fil0G Q?OCQ00 EBIT-ob (!?0160
'bo3001 Q?<:> fil0G oo8Go6ioooG 8om G0Gbo01 CQ0<(30606booob
30801t106ooob CJ08mb3030. EBIT-EPS 0filoG 6i08Q?o6080 8001011'.!?o!Q<:.6

466
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EB!T-EPS .::.,
06
31'i0'1J0Jo tQo EBIT
"l!:?o"m"'c'°l> 3031'ioo-
c:?aoaoo l>al>bol> t!?"
n3o<Jc:?oor'io30 0joool>
tQ1>8o8ooom t!?"'llo6o6-
l>oonl> "c:?8ar'i608n- EBIT ($ .:im.:iuDoBO)
30oou013ol>

:JMm-oMmo, bobbob boCQOCQob 006b0'bc:;3(i)ob013ob,

JM8.306008. 0M(30MOIO 8[JOIMCQO 0M ..>Mob
0103obm.:i30CQ. MMCQ:JU0(3 M..>8CQ:J6n8o 8omMCQn,
o"JOOlCQOU 006'bP100CQ000.

J(Y)8.306oob 8MC,[J00 'bo JM8.306oob OMO/ "DG°" 'bo 8oc:;[JOOU

JM8.'lo6oou 01'i010 "OGool>
(EPS) b0'bM8b ObP1CQ000 9306.:i6bvt'i'io CQP16o (DFL). 930606b(JMO
dMM(3Qfi8<J\!:?O [JM[JS(;OU CQP15:J 8M 00 oob CQM6o'bo 8061(!)0 3.:iCQ .:iP1ob
MM8:Jc:?OG o6im "DG00'b:J 8Me:,;J60Clo
"';i0M"(30<Jc:? 8"1 0 QooClo ofJ303b OMOIO .:idooob . .:i8o30M0CQ,
(EBIT) 1%-0060
;Jfii010068<Jc:?O G3c:?Oc:?QOO
X 'll<Jc:?OU 'lln6o6l>(JMO ar'icnn "JGOOU UOM(l(lO(lc:?OO (EPS)
tQM6:J
JMM(3Q68<Jc:?O (331!:?0\!:?(lOo
(DFL) EBIT-ou (QMMl>
MdQM>(30(Jc:? 801300000 (EBIT) ( 6.13)

MM(30 16.13 o08Mni:Jo5000 DFL-ob 16.13

8061@>030 (J<?J61M 0 08M 0 30CQ 0 [JO..> DFL-b

DP _ EBIT
-'-'E!IITX - EBIT - I - [PD/(l - t)) (1
16.4 "a?oo6b, MM8 DFL 8M 00 oob CQM5:J'bo
801oooob 008M93 001 t.ib 30Mo0'b:J, 8M 0 :J60li.:i
CQ0 CQ063 0 3P1.:i8CQ0 8M 02 ool> boCQnCQ3b 0 05Gb 303000l> ClM6iol>, 1'10 8
CQ0<(30606li36ob CQ..>60b0P1'.li:oool> CQ0b0<(3.:iP10 3.:iCQ.
(CQ008.:ibl>M36io01, P1M8 l>05'06iM0 ()<(3MM 8o@>o 1:Q"6D03 6i08CQD 8M 0 :J6.:i CQn 3-
nCQo5a:?o6ol> CQ0U..><(3..>6i0301:Q, 301:QM[j dMM(306@>oool> !:Q0U0<(30M.:>3.:>1:Q: 08o(!)M8 15306
..>dono6oli 1:Qn30CQ06awoo v5!:Q" 8"31.JMOI 1-'b0 l.l?" Li0 80l.l?.:ili,:,b0l.l?M
8.:i60J3omo f5306li ).

467
 fi306n J(Yl8.3.:i6nnu uoubn01 CQ<>can6.:i6uoonu 2.7
0.:i8(Yl:-_w6oon01 03 .:ij 3u

DFL - $ 2 •700,000 = 1.29

EBIT $2.7 - $ 2 ,700 ,OOO _ $ 600 ,OOO

.:ifooooo01 CQ<>cao6.:i6uooou cao6.:i6u(JMO

(Q(Yl60 <>Mou

DFL = $2,700,000 =I 51
EBIT $ 2,700 ,000 _ [$ 55 0,000/(0. 6 0)] •

u.:io680MOU(Yl.), 8o(JbOCQ"3"(Q (Q<>6.:ib.:iMfeOOOU.)

(JJ806inl>016" --
Cash insolvency -
3"c::'CQQO()c::>DOQOnl>
C!(MMCJc::'"CQ o"C!("b(!(nl>
()()6oMMO,>.
qio6o6l>()MO 6iol>Jo -
Financial risk - oMm
"al3°"'bo '-'"Maooc::>nl> (EPS)
l33"c::'3o"C!1"'ool> 8"1§3o"l>,
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(JJ8"MOUMOOU MOUJO -
MM8oc::>nl3 0,,a.,,030CJc::'°"
'1)n6o6l>()MO c::'333MJ:J<:OU
"JG000001 CQ<>cao6.:i6uooou <>Mou 3nCQMO uoubo01 CQ<>cao6.:i6uoonu
CQ<i6.:ib.:iMfeOOO (550,000$ - 600,000$-ou DFL <>MOU
<>dGoou <>Mfio3.:i6nu 8oboCQ 3001, 30CQMO u0ubou .:iMfi 03 .:i6001. 0u bCQoo.:i u0ub'bo .3M(Yl-
Go68ou b.:iMfeoo<lo 0.:i8(Ylj 3001 3ou 0.:i8(Yl CQ<>oo 03 Mnu CQ" CQo 3-
0CQ06CQooou <>M c,.:i8(Ylj30013ou c,.:i8(Yl. b<loM<>CQ M(Yl8
.:ij 8 o00001 <>Mou MouJo.:i6o uoubn01 CQ<>cao6.:i6uo-
o.:i 'bo 0ao8o68o J(Yl8.3.:i6oou01 3ou. c,<>CQ<>bCQoU(J(J6<>M(Yloou MOUJnu 8oboCQ 3001 0u
u.:i3.:iM<>()CQ(Y)CQ <>Mou 8.:i 0 M.:i8 DFL o30()o6oo.:i, M(Yl8 EPS-u <lou.:io.:i8oun
nj6oo.:i "JG000001 CQ.:>cao6.:i6uoonu <lo801b303.:i<lo, 01() ub3.:i
CQ.:>6.:iMfio6n .3oM(Yloooo Mfioo.:i 00030 . .:i8 O(J600Mo3.:iCQ 0.:>CQ<>31J.:>3.:iM01 cao6.:i6u()Mo
MOUJOU U<>J001b'bo 8ou cao6.:i6U(JM CQ(Yl6ou01.:i6.
<tJo6.:i6l.i(]tilo ('f)ol.iJo. 'Bo6.:i6G()61o {l')nGJo, 003Mo 3oli.:i(Jo6io01, <looG.:i3li
o"CQ"bCQoli(J(J6<>M(Ylooli MoliJli CQ" 06i01 .:ij 8 o.:i 'bo 8.:i8oo.:ili,
cao6.:i6li(JMO c,.:i8(Yl1Jo600001. 01() J(Yl8.3.:i6o.:i 'bMCQOU CQ.:>cao-

---------------- - - - -
'1J06o6l>(JMO c::'033MQ:J<:OU
'bao"3i::'J6nl> a"o"c::>nmo,
fi"'anr::>oo vll 30 60ol>, fi"'a
CQ"C!("OJoaMo8CQ3 [E(EBIT)]$80,000 $80,000
'1Jo6"6l>()MO i::'D3DMJ:J<:O
30,000
'bJo"3c::'D6"l> ob(!(36l> JMmo
"aeool> ""a"'aCJCJ" 33 o0onl> (!("03036iw1iw [E(EBT)] $80,000 $50,000
C!(M6Q 'b3 (!(,) 8nu [E(EBT) X t] 32,000 20,000
G3"c::>D 0?C!1"' 0" 'b3
ll30CJr::'Dc.Mo30.>donn"ol> [E(EACS)] $48,000 $30,000
(NS) 4,000 2,000
l>.>M8:JOoi::'" 0Ma> "aooo'b0 [E(EPS)J $12.00 $15.00

o: Mol>Jol> J"'8.3M606830o
:iMm 0dG°"'bn a"C!1"bM.> ( aeps)* $6.00 $12.00
J"'D'1JOOO:A8Jn :lfuon68DOol>
C!1" [Ge81r!E(EBIT)] 0.50 0.50
DFL 800,000S-ob a,.,i,,<:'"'!!160<:;>0 EB!T
[E(EBIT)]/[E{EBIT) - I - PD/(! - t)J 1.00 l.60
36im 0deo0'bo l>06i3aoc::>nl> 3"ti\00enol> J"'D'Booon6i§o
[sEPS/E{EPS)] ,,5 [sEB1r/E(EBIT)] X[DFLmsmJ 0.50 0.80

* 63onl>8031'\o C!38mb3[J30a>o X l33c::'"CQOUm3ol> (J(a+bx) = {b)(ax): .>8oi§m8 (JEPS =

= (l/00a.,,0330CJc::>n ll3:JCJc::'[)ol'\030 0dooaool> "'""'C!106"'o") (I - t)(O'esrr). 803oc::>nm.>CQ 50%-0060 l>ol>bo:
(1/2,000)(1 - 0.40)($40,000) = $12.00.

468

firm
0t<im <>dGM'bo li<>l<i 0 ooe:ol>
03 e:oc::-oo<> (EPS),
oo'b63Goli t<inGJG
IJ1<>8<>&QOC)e,'O 'l'.J06<>6l>CJMO
t<inl>Jo.
16.
6.:i6Lia6oli iQ.:>6.:ib.:iM3a6oli dMf'ldMM(3o<>li 8oGo li8M(Jd8(JM.:>Clo,
o'bMiQa6.:i .:il.ia3a ClaiJ?ao<>iQ o'bMiQao.:i 0.:>iQ<>biQol.i-
(J(Jb.:>Mf'lOnl.i Mf'l8 3.:iR3a6f'l01 cao6.:i6li()MO MOUJOU al> 8b.:iMa, iQ<>3()Cl3.:i01, Mf'l8 f'lMO
JM8.3.:i6o.:> 0.:i6Gb3<>3iQa6.:i cao6.:i6li(JMO Clali.:io.:i8ol.i.:>iQ, 8.:i0M<>8 OiQa68(JMO .:>Mo.:>6
iQ<>foMRa6o .:ili.3aden01. .:id 3Li 80,000$
0.:i6.:>J3a010G.:i iQ<> iQ<>oa 03M<>8iQa· ,:, Jf'l8.3.:i6o.:il.i <>M <>d3li lialibo. 6 JP18-
.3.:i6o.:il.i 808f'ldGa3.:iClo <>d3li 15%-o.:i6o 200,000$ 8(JiQ8030
o<>Goa6o . .:i803<>M<>iQ, 6 JP18.3.:i600G0130G cao6.:i6livMo
o<>iQ<>biQa6o .:>Moli 30,000$, Mf'liQali<>(3 ,:, JP18.3.:i6o.:il.i .:>M .:ij3l.i caofo6li(JMO
0.:>iQ.:>l.i.:ib.:>iQaoo. 01() 0.:>8M8()Cl<>3aoa60 MM03a JP18:3.:i6ool.i013ol.i od6ao.:i
75%-001 JaMdMiQ 20,000$, o JP18.3.:i6o.:i 3aM 8ol.io cao6.:i6li()Mo
iQ<><f3<>M 3.:it.i 0.:i8f'l8()Cl.:i 3aoaoo01. R3a6 Mf'l8
o"iJ?"biQOU(J(J6.:>Mf'lOOU o'bMiQa6.:i JP18.3.:i6ool.i 8oaM
cao6.:i6l.i(JMO iQ<>Mo(3b3a6001.
cao6.:i6l.i(JMO MOUJOU 8af'lMa .:ili.3ad8n Clao(3<>3li aM01 <>dGo.:i'ba Clali.:i6.:i8ol.i iQOU-
.3aMl.io.:il.i. Mf'l8 .:i3bl.i6.:im, iQ<>3()Cl3.:i01, Mf'l8 ,:, iQ<> 6 JP18.3.:i600G0130G
EBIT .:>Mol.i Cla801b3a3omo Mf'liQali<>(3
.:>Mol.i 80,000$ iQ<> o<>iQ<>bMaoo 40,000$.
Mf'l 0f'lM(3 8.:i6"8iQa, " JP18.3.:i6o.:il.i <>M .:id 3Li Lialibo, 8.:i 0 M.:i8 .:ij 3G 8o8MdGa 3.:iCJo
4000 <>dGo<> 10$ o JP18.3.:i6o.:il.i 808MdGa3.:iClo
<>d3li 200,000$ 15%-o.:i6o il?" 2000
<>dGn<> 10$
16.4 ,) R.:iMRf'l ()R3a6aoli, Mf'l8 <>dGoaool.i
0.:i8M8()Cl<>3aoaoo " Jf'l8.3.:i6oob0130G 48,000$-ol.i,
Mf'liQali<>(3 o JP18.3.:i600G0130G al> Mn(3b30 30,000$-ol.i. <>dGoa6ol.i
iQo 3oiQa6iJ?aool.i 0 .:i8f'l8()Cl<> 3a6aoo
<>dGoaool.i M<>f'liQa6f'looli 8obaiQ3001 ()R 3a6aoli, Mf'l8 o JP18.3.:i6o.:ili
<>d3l> 0.:i8f'l8(J'Cb3aoaoo aMm <>dGo.:>'ba, 3oiQMa " Jf'l8.3.:i6o.:il.i: <>6()
Clali.:io.:i8ol.i.:iiQ 15$ il?" 12$. aM01 <>dGo<> 'ba c,<>iQ<>bM.:i 0.:i6G.:i 'b-
6$ .:i JP18.3.:i600G0130G iQ<> 12$ o Jf'l8.3.:i600G0130G.
Jf')86.:i6ooG MOUJO 6o'b6ab <'ilobJG 'Bo6.:i6G-v<'ilo l'JobJo. aM01 <>dGo.:i'ba
3.:>M0.:>(300U Jf'lacaoGoa68o, 8<>M803.:>iQ .)MOU c,<>iQ<>bM.:>
aM01 <>dGo<>'ba Clali.:i6.:i8ol.io
iQoli.3afi1Liool.i R3a6 301:Ja6a6m .:,8 li8<>8oli80J.:il.i, Mf'l 0 Mfi1G
li.:i'bM8li. 16.4 6 R.:,fi1Rf'lClo Mf'l8 ,:, JP18.3.:i6ool.i0130G, 100%
li<>J()01<>fi10 iQ<>can6.:i6Liaool.i.:il.i, afi101 <>dGo.:>'ba 3.:,fi1o<>Gool.i JMa<f3oGo-
a68o .)MOU 0.50. iQ.:>08.:iblif'l3Ma01, Mf'l8 al> M0(3b30 'b(Jli8<>iQ JP18.3.:i6ool.i 8Mc,a6oli
3<>Mo<>Gool.i JP1a<f3oGoa68oli, 0 .:,6.:iJ3a01<>8iQa iQ<> iQ<>6a 0 3M<>8iQa· al> 60Cl6.:i3li, fi1f'l8
caofo6l.i(Jfi1o ,:,(i) .:>Mlia6f'l6ol.i dnMf'l6aoClo(3 JO, JP18.3.:i6ool.i <>d(3of'l6a(i)a6o 8.:io6(3 0,:,6-
0(3iQ0.:>6 fi1ol.iJG - 6o'b6alifi1ol.iJG. JP18.3.:i6ool.i 6o'b6al.i fi1nGJnl.i Clali.:io.:i8ol.io l.ioiQoiQa .:i8 0 3.:ifi1<>iQ
,:,(i)ol.i EBIT-oG 3.:ifi10<>(300G JP1:J<f30Goo68n. 6 JP18.3.:i6ooli0130G, 50% Lialibom iQ<><f306.:i6Lio6oli.:ili,
ofi1m <>dGo.:i'bo 3.:ifi10.:ioool.i JP1:J'BoGoo6eo <>Moli 0.80. M<>iQ 0.:,6 o JP180.:i6o.:i 'b(Jli8<>1Q
J 0 .:i3G <> JP18.3.:i6o.:il.i cao6.:i6l.i()Mo 0.:i8f'li:J:J6o6ol.i 0 .:>MiQ<>, R3o6
0 .:i8f'l3ntJ06f'l01 0 .:i6lib 3.:i306.:i" il?" 6 JM80.:i6oaool.i aM01 <>dGo<>'bo 3.:iMo.:i 8 ool.i Jf'la<n-
Goo6eooli df'lMnli: <>b(J 0.80 - 0.50 0.30, Mf'lof'lM(3 G.:i'bM8o ofi1m
<>doo.:i'ba o JM8.3.:i600Li01 3oG, 0 .:i8r<1 8o6aoo01;
oli 0.:i6Gb3.:i300.:i .)MOU cao6.:i6l.i(JMO MOUJOU Cloli.:io.:i8ol.i.:>iQ, <[306.:i6li(JMO
MOUJOU al> 0 JM8.3.:i6ool.i aM01 <>d(3M'bo 3<>M0.:>(300U JMOcao-
(3006eoli.:i il?" 0 .:,6.:iJ 3am<>8iQo il?" IQ<>6oc, 3 fi1.:i8iQo 8 .,af'l8()Cl<> 30o06ol.i 3.:iMo.:i 8 ool.i
Jf'l0'BoGoo68li ClMfi1ol.i lib3.:iMooli.
469
 oa3oio8Mm
• JM8.'.3o6ooli tl'ioliJO = oo'b6ali tl'ioliJli + '(306o6livmo moliJo .
• amm odeoo'b3 3oll'iooeooli JMD'(30EJOD68o, CVEl'S omoli JM8.3o6ooli
tl'ioliJoli lio'bMBo: CVEPS = O"Eps/E(EPS).
8"6"J3:JCT>o8ow 8M()3ooli 3oll'iooeooli Jf'l3'(3oeo3680,
CVEBIT oll'ioli oo'b63litl'ioliJoli l.h':> 'b(Y)Bo: CVEBIT= yEBITIE(EB!T).
ao6lib303300 3tl'im odeoo'b3 3omo0eooli JM3caoeo368li (CVErs) li0t>laa-
a060J33mlio 8M()3ooli 3ot>looeooli Jf'l3caoeo368li OMMoli
(CVEBJT} omoli cao6o6livt>lo P1oliJoli (CVEPS - CVEBIT).

16.4 R336 36ob3m, M(Y)a Jf'l8.3o6ooli moliJo MM3f'lMG

30 3mm odeo0'b:J 3omooeooli JM3CSOG0368om oMoli 50%-0060
100% li"Jvm0t>lo (!?0'(306.">6li3ooli
Bob3(!?3om. mvBG"' 3P1m "dGM'b:J (!?f'l63 .">li333 oMoli R336
3"C!?"li8vm3om moUJOli."> Cl?" af')33ooli ov630.">li, M.">(3
ob.">lioom3oli '(3o6.">6livmo ()B383lifYlooli.
DFL tl'iol>Jb. JfYlB.3o6ooli P1oliJoli li.">'bfYlBo, 3t>lm <>deo..,'b3
30t>lo..,eooli Jf'l3caoeo3680, JoM(!?.">Jot>l 3t>lm "dGo"'b:J
3o(!?<>bmoli 3"l:Jf'l'(3om 3t>lm "DGo"'b3 3"B(Y)Bvoo3303o'b3. mvBG"
30111.">(J(!?:JOOO'l f13360 3.">Bf'lR6(!?3li, MMB 3li
,;li333 306.">J3:JCT>.">B(!?:J (!?C> (!?o0333M.">B(!?3 Bf'l33ooli
3.">Mooeooli Jf'l3'(3oeoa68o 'Bo6o6livt>lo
EBIT-oli R336li " Jf'lB.3060.">li ,:,t>l <>d3li '(30606livt>lo Cl?"
DFL 1-oli: .">M oo'b63li MoliJoli Mf'l3f'lM(3 3li
CVEBJr-om.,:, Jf'lBJ.">6oolim3oli, CVEPS CVEBIT-oli Cl?" JMB.3.">6ooli
t>loliJo Bolio oo'b63ut>loliJoli. B:Jf'lM3 Bbtl103 0 Jf'lB.306ooli CVEPS Bolio
CVEBIT (Bolio oo'b63lit>lnliJo) 1.6-'b3 (Bolio DFL EBIT-om) . .">B3-
3.">M.">(!?, Jf'lB.30603oolim3oli, OtJ363oli cao6.">6livP1 B0mo DFL 30'bM(!?Oli
oo'b63li mnliJoli 3P1m "den0'b3 Bovb3C!?"3"C!? oBoli.">,
Mf'lB DFL .">M omnli '(306.">6uvmo moliJoli lin6f'l6nBo, Bolio 'bP1(!?o C!?"B"8aonmo
MoliJnli 03li00.">Boli lio(!?0(!?3li, can6o6li(JMO 3.">Bf'ltJ363oom. Jf'lB.3.">60300
oo'b63liP1nliJOO'l 3.">BMntJ363036 a?<>cao606li300li, 30Bf'lo-
0333li DFL-li Jo(i)ndnm.

mv can606li(JP10 B.">m :l(:.">Bli

3of'lC!?Do" ("6 'Bo6..,6livP1o Cl?"
oMOU 3"l:JOC!?3300o 63onliB03Mo f'lM li."><(33b-
vmo.">60 3P1m <>den<> 'b3 Cl3li.">o.">Boli.">(!?. JMB-

Ci}:'fl)_

EPS)

470

Total (or
cmnhincd) !average -
MMo3iJ. '1lodbol"ioo'3c::'o
"1.3QM0(30C)c::'O !QO !Q0'1J0-
606u3oob 1:Qo6obo"1:icnool>
i>0B"'81J6300 JM8.3o6ool>
8031'1.
- Degree of total
leverage (DTL)- 31'10>
odoM'ba 038Ml>o3oi!::>nli
EPS dMM(3060eJ!.!'.:'O
G3!.!'.:'0!.!'.:'000, e,oBMIJ3aeJcc:>O
&>8n1:Q33oob (06 IJofii-
8M3ool>) 1%-0060
G3c::'0!.!'.:'IJOOo>. ob ol.>030
0M!.!'.:'00 Md£JM0(30CJc::'0
cc:'03£JMO:l<:ob !QM61J (DOL)
e,081'103c::'OOCJcc:>n
'1lo6o6beJMO cc:'33QMO:l<:ob
!Q"'6.'.l'b.'.J (DFL) 1Jofii8rooool>
(0 >801:Q33ool>) JM6JMiJ-
0CJ!.!'.:'O !QM6nl>m3ol>.
· 080G ()i>M(Qi:>, 16.8 (Qi> 16.9 0 i:>60MC:::[JOi:>Clo "C:::0DM6i:>&o(Jc::;o DOL-oG 6i:>8(\')i:>3c::;o DFL-'bo 16.14
16.
.30600G o(Y\01 0doo0'bo G0M 0ooc::;oG i:>8 801c::;M60 80 (Y)d6(Y)ooc::;C'looG Mi:>C'l!:Q[J6M0Mo3 8i:>f1306ooac::;G
JM8.3i:>6ooG 8"::JO!:Q3QooG 03c::;oc::;oooG 8080(\')01 QfiM!:QQOi:> 801c::;M60 C:::Q3QMQfaoG !:QM6Q (DTL).
J(Y)8.3i:>6ooG 801c::;ni:>60 C:::D3DMOfeoG !:QM6Q 00M8MQC oG (06 8"801:Q3DooG) JM6JM00(JC::: !:QM6a'bo
0C'lc::;o0 [JM01 0doo"'ba Gi:>M 0 aoc::;oG .3MC'JGQ60(Jc::;o 03c::;oc::;oo" 8"8C'l<tJoc::;o Di:>M8(Y)ao0Clo ("6
()0::JO!:Q3[JOOo) .3MC'lGo60(JC::: 03c::;oc::;aoi:>'b[J, Mi:>G 06303G QM010 "doooG Ui:>M()QOc::;oG 03c::;oc::;a-
Oi:>U. "883"M"!:Q,
am!.!'.:'0060 !.!'.:'03£!MD:l<:ol> CQM6o :.iMa> >dGn" 'b3 l>ol"ie,oo!.!'.:'ol>
6ol"i8Mnool> (06 e,o 8oCQ 3aool>) =
Q IJM"'iJCJc::'On (06 S l10"18M30000 (06 3080CQ30000)
0106bMofiin30CQ)
(16.15)
0i:>8M013c::;o01, f13a6 Clo 0 3odc::;o0 0 08M3o::ia6M01 oG 'D"d&n, (Y)C'l8 801c::;oi:>60 C:::Q3DMQfeoG !:QM6Q·
80M&n301:Q i:>MOU C'l.3QMi:lQO(JC:::O C:::D3DMQfeOG (QC'l6oG .3MC'l!:Q(Jden (Qi> <tJ06i:>6U(JMO C:::Q3[JMQfenG
(QM6oG fei:>8o
(16.16)
0"6&C'lc:::ao0<lo R30 6 83 "dc:::a 3G
. Q(P -V)
DTLQ 0'""' 3ci"'o0°= Q(P -V) - FC - I - [PD /(l - t)] (16.17)
DTL _ EBIT + FC
s '<JCJ(!::'O- EB IT - I - [PD /(1 - t)] (16.18)
0G "C:::0aM6"eo(Jc::;n 8"60C'lc:::ao 0oo 830 (Jo6ao", (Y\(")8 JM6JMD0(Jc::;n JM8.3i:>600G01 3oG, M"G
!:QO!:Q00 <tJn6"6G(JMn !:Qi>6i:>b0MfeQOO !:Qi>O[J83Mi>8!:Q[J, 8001 !:QO(Q00 801c::;oi:>60 C:::Q3QM[JfenG b0MnGbo,
i:>6(J MC'l!:Q[JG"G 0M i:>MU[JOMoG <tJn6i:>6G(JMn C:::Q3DM0feo.
!:Q"3()03i:>01, MC'l8 f13a60 8C'l0C'JGOJC:::a&nG f10<tJb(JeDooG 800M8C'JQOQC::: JM8.3i:>600G 0d3G
200,000$ M.3QMi>GO(Jc::;o C:::D3QM0feo 8 .3MMQQ6&ni:>6 GaGbClo. 003obGa6M01, MM8 [JM01[J(Jc::;nG
8"::JO!:Q30U <tJi:>UO i:>MOU 50$, QM01Q(JC:::OU G3C:::i>!:QO C'l.3QMi:lGO(JC:::O (Qi>fobi:>MfeQOO 0MOU 25$ (Q0
oc::;n(JMO <?JOdl>nMQO(JC:::O C'l.3QMi:lQO(JC:::O (Qi>6i:>bi:>MfeQOO ()MOU 100,000$. i:Q"3(Jd3001, MC'l8
Ui:>oi>!:Qi:>Ui:>bi:>(QC'l c,06i>J3:J010 i:>MOU 40% (Qi> MC'l8 f1306 83U(JMU 8"63Gi:>'bc;3MC'l01 801c::;o060 c:::a3-
QM[JfeOG !:QM6Q bi:>M8MQOnG (Qi:> ()0::JO!:Q3QOoG 8000 [JM01[)(JC:::OG0130G. i:>8o&M8, 16.17 0i:>60MC:::[JOnG
0 08C'l::ia6aoo01 f13a6 0 30d3G
DTL _ 8,000($50 - $25) = .
2 38
S.Q003ri\0>3C)(!::'O - 8,000($50 - $25) - $100,000 - $16,000
"883"i;l"!:Q, 10%-0060 'bM!:Q0 Di:>M8C'loo(Jc::;n !:Q" 8"::JO!:Q(JC::: Mi:>C'l!:Q:J6C'loi:>Clo 008Moo3 03 G23.8 .J(YJ(")-
006&0"6 QM010 0doooG Gi:>M 0 Qoc::;oG 'bM!:Qi:>G.
f13a60 80 0 0c::;o010G JM8.3i:>600G0130G 801c::;ni:>60 C:::Q3[JMQfeoG bi:>Mnl>boG !:Q0!:Q8Q6001, i:>6(J 8oGo
M.3QM0Go(Jc::;o C:::D3QMQfanG !:QM6oG fo8f\1"3c::;o01, 8oG <tJ06i:>6li(Jf\1 c::;o3of\1afe'bo, 3nc;o601
x DFLEB!T OU $IOOPQO
8,000($50 - $25) x $100,000 = 2.38
8,000($50 - $25) - $100,000 $100,000 - $16,000
2.00 x 1.19 = 2.38
471

lioubnG eD3"1!?"'6" Debt
capacity - u3ubnu
80dl>n8oc:;>vt'in unll?nl!?a
(8001 0011'\nl>, avll?8n 3n
ll?"«Jn6o6u 3onl>
00m30c:;>ouon630001),
t'i0183c:;>oG JM8.'l0600l>
Clovdc:;>n0 v.'lt'i01oc:;>a801il?
ou3ub01u 1!?0
801a8u0bvt'i01u.
f!?"'ll"t'i30G J"'D'll"(3n36C!Jn
- Coverage ratios -
J01:J«J0(30:J68o, MM8-
c:;>;J00(3 0J0 3Clnt'i 0ou
JM8.'l06nnl> «Jn6o6uvt'i
3"c:;>ll?QO<Jc:;>oooou, Bou
Cl3uodc:;>;JOc:;>MOOUOlo6,
80138l>obvt'i01l> 06
fl?O«JOM01U 8MJc:;':J301l?006o
3oc:;>ll?:JO<Jc:;>DOD00.
uot'i 0ooc:;>ol> ll?"«J"t'i3ou
J"'O«J0(30IJ6eo - Interest
cowragc ratio - 8M3300
JMD!l?oenl> uot'i33oc:;>nl>0
ll?o 8M0300L> 0 oll?"l>0b0il?ol>
00ll?"bll?"8n;:a 001:1"'<aoc:;>n
JM(Jll?Oenl> l>0t'i33oc:;>OU
80u 0L> 033
vo01n;:ooo6
308M308(J003301
Jt'ioll?neol>
472
'?3o6.:i6l>(]Mo .:.61 .:>Ml>oocYlool> !Q61cYll>, fi3060 JcY18.'3.:i6ool> !QcY16o
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Donaldson, Gordon. Corporate Debt Capacity. Boston:
Division of Research, Harvard Business School, 1961.
- - . "Strategy for Financial Emergencies." Harvard Business
Review 47 (November-December 1969), 67-79.
Gahlon, James. "Operating Leverage as a Determinant
of Systematic Risk." Journal of Business Research 9
(September 1981), 297-308.
- - , and James Gentry. "On the Relationship Between
Systematic Risk and the Degrees of Operating and Financial
Leverage." Financial Management 11 (Summer 1982),
15-23.
Harvey, Campbell R., and John R. Graham. "The Theory and
Practice of Corporate Finance: Evidence from the Field."
Journal of Financial Economics 60 (May/June 2001),
187-243.
Hong, Hai, and Alfred Rappaport. "Debt Capacity, Optimal
Capital Structure, and Capital Budgeting." Financial
Management 7 (Autumn 1978), 7-11.
Levy, Haim, and Robert Brooks. "Financial Break-Even
·Analysis and the Value of the Firm." Financial Management
15 (Autumn 1986), 22-26.
Myers, Stewart C. "Capital · Structure Puzzle." Journal of
Finance 39 (July 1984), 575-592.
Piper, Thomas R., and Wolf A. Weinhold. "How Much Debt Is
Right for Your Company?" Harvard Business Review 60
(July-August 1982), 106-114.
Zivney, Terry L. "Alternative Formulations of Degrees of
Leverage." Journal of Financial Education 26 (Spring
2000), 77-81.
Part VI of the text's web site, Wachowicz 's Web World,
contains links to many finance web sites and online
articles related to topics covered in this chapter.

487
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Arditti, Fred D. "The Weighted Average Cost of Capital:
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513
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(June-September l 978}, 265-296; Eugene F. Fama, Lawrence fisher. Miclrnd .knscn..and Richard Roll "'The
of Stock Prices to New fnformation," l111ema1imw! Economic· Review JO l 969), 1-2 ! ;
S. Cmnblatt. Ronald W Masulis, and Sheridan Titman. '"The Valuation ofSt,ick Splits Stock Dividends."
Journal of Fi11a11cia! Economics l3 (December 1984). and J. Randall \Voolridr.:c. "Stock Di\ idcncb
Signals." Journal ofFi11ancial Research 6 (Spring 1983). !··12. '

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J. Randall Woolridge and Donald R. Chambers. "Reverse Splits and Sharehoidcr Wealth:· Fi11m1cial
Managemelll 12 (Autumn 1983), 5-15; and R. C. Radcliffe and \V. Gillespie. "The Price IIllpact of Reverse Splits."
Financial Alwil'sts Jouma! 35 (January···February 1979). 63--67.
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8 0.89 0.89 1.00
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8M60Go8oou.

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Part VI of the text's web site, Wachowicz's Web World,
contains links to many finance web sites and online
articles related to topics covered in this chapter.
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p = (P )(N) + S
0

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x 4 +1
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x N
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R = $98 - $90 = $2
x 4

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2
l>o6aio'bol>ai3nl> 6.:iboai Clifford W. Smith Jr., "Investment
Banking and the Capital Acquisition Process," Journal of Financial Economics 15 (January-February 1986), 3-29.
See also Paul Asquith and David W. Mullins Jr., "Signalling with Dividends, Stock Repurchases, and Equity Issues,"
Financial Management 15 (Autumn 1986), 27-44.
3
6.:iboai Stewart C. Myers and Nicholas S. Majluf, "Corporate Financing and Investment Decisions When Firms
Have Information That Investors Do Not Have," Journal of Financial Economics 13 (June 1984), 187-221.

566
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Admati, Anat R., and Paul Pfleiderer. "Robust Financial
Contracting and the Role of Venture Capitalists." Journal
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Allen, David S., Robert E. Lamy, and G. Rodney
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Bethel, Jennifer E., and Erik R. Sirri. "Express Lane or
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Gregory F. Udell. "Recent Developments in the Market
for Privately Placed Debt." Federal Reserve Bulletin 79
19.
8df'16o <tPG0060 610MrQ0-
M0f>1(Q:J6M008(Qo)
= $6,061,000 Xl5%X 6 $5,454,900
= $5,454,900 + $195,000 = $5,649,900
= $6,000,000 X 15.5% X 6 = $5,580,000
= $5,580,000 + $20,000 = $5,600,000
M0(Q()06
6 (QMMob 8oborQ3ocn
8P10b(Qo6G JOMdM(Q 006cn03GoooG 00 'bM(Q0 'bo. 006Gb3030-
00618MoOP100 (Q0b00tJObOO.
$6,061,000 X 15%X 12 = $10,909,800
= $10,909,800 + $195,000 = $11,104,800
= $6,000,000 X 15.5% X 12 = $11,160,000
= $11,160,000 + $20,000 = $11,180,000
GoGbocn,
(February 1993), 77-92.
Fung, W. K. H., and Andrew Rudd. "Pricing New Corporate
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Hess, Alan C., and Peter A. Frost. "Tests for Price Effects
of New Issues of Seasoned Securities." Journal of
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(Fall 1997), 34-45.
571
Keane, Simon M. "The Significance of the Issue Price in
Rights Issues." Journal of Business Finance 4 (1972),
40-45.
Loughran, Tim, and Jay R. Ritter. "The New Issues Puzzle."
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Financing and Investment Decisions When Finns Have
Information That Investors Do Not Have." Journal of
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Q&A: Small Business & the SEC. Washington, DC: US
Securities and Exchange Commission, 1997 (available
online at ·"--''-'""""'-""'.ip''"-'-'-''"cc'""'"-'-"'''-'-'"-"-''·"'"·"'.2.!'.
Ritter, Jay R. "The Costs of Going Public." Journal of
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Common Stock." Journal of Finance 43 (September
1988), 789-822.
572
Wilhelm, William J., Jr. "Internet Investment Banking:
The Impact of Information Technology on Relationship
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(Spring 1999), 21-27.
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tion and Fimi Value: Evidence from Private Equity
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i;>art VII of the text's web site, Wachowicz's Web World,
contains links to many finance web sites and online
articles related to topics covered in this chapter.
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[$8(0.10)] + [(0.10) x]

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=4
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3. 0.
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598
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0. li03'0P101 0dGno60G P1001Q?o60160 oP'lmo CQnP'lod&01P'loG 0P'lfio30Gm30G =

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(9 + 1) '

080&018 80G 00P'lfio01G 01P'lo CQnP'lod&01P'lo

0. boffOMM odGnoooG M0M(Q050160 oP'lmo (QOMOd&01P'lob 0P'lfio30Gm3ob =

2,000,000 x 1 + 1 = 500 001

(3 + 1) ,

80b 0M 0M(30MO'l0 (QOMDd&01P'lob 0P'lfio30.

Alderson, Michael J., and K. C. Chen. "Excess Asset
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599
- - . "Bondholders and Corporate Governance." Business
La1-tyer 41 (February 1986), 413-460.
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Maturity Features of Corporate Bonds: An Empirical
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Part VII of the text's web site, Wachowicz's Web World,
contains links to many finance web sites and online
articles related to topics covered in this chapter.
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OC>6Jb b()Mb C>l.>0010 l>ol>bol> 8"(308" 14 .3MM(306&01>60 o"6"J3001001. l>ol>bo
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OMM36()6n 01>0JO!:QC>6. l>oubo 8"!Q"ob!QooC> 80M01bo !QC> 8M0(31>3U uol>bol>
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o"!.!/"bCQooll fio6i:>ll!'i"cYi. llollboll "c:.>8ocYi6"803" Cloo<3"3ll 10% .3MP1(306&oll CQ"6"b0cYifeooll.
llollboll ()i:l(Qi:>b(QOOO SP1b(Q000 ())0(J)f'10';'.Jc:.'0 bc:_>oll (Qi:>U0btJOUClo b(JmO bc:_>OU ()i:>6Si:>3c:_>P10i:>Clo
llollboll i:>SP1cYi&o'b0(3ooll o.3Ma>OJOU &o.3oll 0 oSP1tJ06ooom. '(l(Jc;_>i:>CQO 0 i:>lli:>3c;_>oooll SomP1CQOU
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2 3 4 5 6
6ob3bb300 0106bo bc:?ol> &>6803c:?M0000 $1,400 $3,000 $3,000 $3,000 $2,000 $1,000
1,600 0 0 0 1,000 2,000
3>c:?IJ?30(Jc:?3ool> U>'1J>U()Mo (0.005) 8 0 0 0 5 10
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2. (21.2) 3:JMl.in.:i,
0. $46,000 = X + X(PVIFA 11 %, 5)
$46,000 = X + X(3.696) = X(4.696)
x
= $46,000/4.696 = $9,796
o. $210,000 = $47,030/(1 + PVIFAx,5)
$210,000/$47,030 = (1+PVIFAx,s)=4.465
1-nli nli IV 8Mdno6nm (lfo06nli
!Q06.:iMmon) 4 .3:JMOffl!QOl.i 80JMn3nli o0!Q0J3:JO'lOl.i Mf'l8 3.465 0Mnl.i
6 .3MMG:J68nlim3nli. :J.n. X, .:iiYlnli 6%.
0 . X = $16,000(1 + PVIFAs%. 6)
x = $16,000(1+4.623) = $89,968
IQ· $165,000 = $24,412(1 + PVIFA 10%,x)
$165,000/$24,412 = (1 + PVIFA 1o%,x) = 6.759
"J:J!Q06 1-nli 5. 759-Li. IV 10%-n.:i6 G3n8Cln fl3n6
MM8 5.759 O:J:Jli.:io08no.:i 9 .3:JMOM!Qnli 80JiYln3li. 0808M8 .3niYln-
M!QO <lMnl.i 9 + J, .:i6 J0

3 · '?J'(Jc:?.:ill?o 60J01l?DoOL> 0061'\0oo

(a) (b) (c) (d)
1.:>000ll?01.:>0b0ll?M 001.:>03.:ic:?o
cinc:i.:i::i.:imo ll?0oDo3t>'>Ou cioall?::Jo
x
0 $16,000 $16,000 $16,000
1-7 16,000 $6,400 9,600 49,305*
8 6,400 (6,400) (3.357)
$61,948
- - - - - - - - - - ---·--·---

!QObJM68nli 0.:i60J3:JO'l0 .:iiYlnG LinGbnG !Q00:Jo3M<>81Q:J 1-'bn

b0 0 .'.l!Q.'.ll.i.:ib.:i(QM 0 .:i60J3:JO'l0 1 06 (14%) (1 - 0.40) = 8.4%
li:Jbbnl.i 0.'.l(Q.'.lb(Q.:i
$100,000 = X(l + PVIFA 14%, 7)
$100,000 = X(l + 4.288) = X(5.288)
x = $100,000/5.288 = $18,910

623
 7
I.

(a) (b) (c)

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of'l!!'..'f'l 00t!!0btl!0
0 $18,910 $81,090
1 18,910 73,533 $11,353
2 18,910 64,917 10,295
3 18,910 55,096 9,088
4 18,910 43,899 7,713
5 18,910 31,135 6,146
6 18,910 16,584 4,359
7 18,906* 0 2,322

<aV!!'..'0t!!o 60J0t!!aooL> o06t">Ooo L>:JL>bOL> 0!!'..'<!!i:Jt"i60<!!io3oL>m3oL>

(a) (b) (c) (d) (e) (f)
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61!'..'0l> l>:Jl>bOL> 61!'..'0()6>0 61!'..'0()6>0 'a()!!'.,'0t!!O 60J0t!!O PV
of'l!!'..'f'l 00t!!0bt!!0 .)6if'l(3:J6<!!i0 08f'lt"i<!!iO'b0800
0 $18,910 $ 0 $ 0 $ 0 $18,910 $18,910
I 18,910 11,353 20,000 12,541 6,369 5,875
2 18,910 10,295 32,000 16,918 1,992 1,695
3 18,910 9,088 19,200 11,315 7,595 5,962
4 18,910 7,713 11,520 7,693 11,217 8,124
5 18,910 6,146 11,520 7,066 11,844 7,913
6 18,910 4,359 5,760 4,048 14,862 9,160
7 18,906 2,322 929 17,977 10,222
8 (24,000)* (9,600)** (14,400)
- --
$100,000 $60,308

*
** G.::. 0.::.°'1.::.G.::.b.::.°'1"' .::.8"'/i\tfl.>o'b.::.ooou
($24,000)(0.40) = $9,600.

(Y).:,t\18.::.6 .::.d3li
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6.::.1'1Ro6o - &.:>b(QOU
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. .::.8 lin8(J.:>(30.::.0o, R3o6 3.::.8'.}i:M006oom
6.::.803.::.l.i.

624
 21.

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Harvard Business Review 60 (March-April, 1982), Evidence on the Bank Lending Process and the Capital-
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Financial Management 19 (Summer 1990), 11-20.

625
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628

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VSB = (1 + j /2)' + (1 + j /2)2n
= (I/2)(PVIFAi12.2n) + MV(PVIFi12.2n)
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v2 = J(J.3M6(J('i\o 0 060J 3omom 0 06b0 'bc:; 3('i\(Jt'.!.'0 60b 03 0('i\ot'.!.'0060 .3('i\(Y) 80 6&(Jt'.!.'0
00!QC>b!Q00o.
MV = fYJ0('.!_'000Goob bo8oocaob c:;o('i)oo()t'.!.'000.
2n = 60b::i 30('i)ot'.!.'0060 .3o('i)ofYl!Q0oob ('i)0fYl!Q::J6Mo0 bo8oocao8!:l?o·
i/2 = Oei'b('i\ob 60bo30('i\0('.!_'0060 8fYl0000 lrn800C(3::J8(Q0 08030 JM8.306oob 8b003b, 800('i\08
0('i\0JfYl630 ('i)&o('i\ 0000? fYl0('.!.'0 8 08 00 'bo

(22. 1) [QC> (22.2) 006@JfYlC'.!,'OO::JOdo 330('i\e>(J(QfYlOO"> 60bo30('i\o('.!_'006 .}('i\fYl(3::J6@J(JC'.!.' 00(.QC>b(Q::JOb,

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@J(JC'.!,'O 00CQC>bCQooob 8m('.!_'0060 ('i\0MCQ06Mo0 .:i('i\ob 2 008('i\03('.!.'00(J('.!.'O bo8oocao8!.!2o O('.!_'::JOob ('i\0M-
CQ::J6Mo0 'bo.
JM8.30600b, Fawlty Food, 8o8MJG::J3.:i'do 008MG08()('.!.'0 0d3b 9%-0060 JM63o('i)@lo('i\::io0CQ0
CQ0006@l()('i\0 !:l?C::OOCQC>6 20 b('.!_'0060 bo85ocaob 30(.Qom. ::ib 'd::iob0008000 M0('.!_'000Goob 1000$ 6M8-
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8M0::JOC> od6::io0 6%, ('i\.:iG od6::io0 8o8'boCQ30C'.!.'o 063ob@JM('i\:Joobm3ob. 20 0('.!_'0060 9%-0060
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V58 = ($45)(PVIFA 6%,40) + $1,000(PVIF 6%Ao) = $774

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6000, MM8 CT>() f53:J()C'.!.'Do('i\030 eidGoob '?3.:ibo CQC>:JGo80 88oboo('i\0!Q, 0803061.:i!Q, MM8 JM6-
3061&0Goob .3o('i\Mo0b ::JJ6:J00 (J860<336:J('.!_'fYl c:;o('i\:JO(J('.!.'000, JM63:J('i\80M:JOC>CQO C(3C>bo060
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O:Jm<>3<>'b:JO<> 20% b<>OtJnbo Jf'l63:JM()<>Gnob .3M:J8nom lQ<> 105 (1,050$ :JMm 1000 6f'l8n-
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0. M<> .:>Mob Jf'l630M0<>Goob <(3<>bn?
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er M<> .:.Mob lQOO:J6()(JMOb b<>OtJnbo Jf'l630M0<>Gnob
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b:Jbboo 12%-om, Mf'l0 f'lMG Jf'l63:JM()0Moo<>1:Qo <(3<>bo060 0801.ioob
8f'l 00 o.:i oMm <>dGn.:i'bo lQ<> 8f'lo::JO<>
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oj60 008!'.!?oon:

2 3 4 5

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8obo :JMmn <>JGooli <(3<>bo lQ<>:JG<> 10$-81'.!?0 lQ<> Jf'l63:JM()nM:JO<>lQO lQOO:J6()(JM:JOob
li.:io.:i'bMf'l <(3<>bn 440$-81'.!?o :JM()) lQ:JO:J6()(JM<>'bo.
0 .:iblQ<> 410$. 0 .:i6b.:i 'bq36iom .3Mo8o.:i Jf'l630M0<>Goob 'bo !'.!?" .36>0800
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8obol!?3001, (<>) Jo01b3.:.oo.
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8o(Y]MO 8oboQ?3001.
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Malaysian Palm Oil J(Y]8.3.::.6oou 162/3
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(b) IO 10 60
(c) 2.3 4 10
(d) 3.54 27.125 35.40

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43$-<>Q?·
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0.15 0.20 0.30 0.20 0.15

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650
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er M00M8 (i06bb303i:Q:J00 8M(i:JOOb MMO (i060J3:J010?

1. 0. JM63:JM80Goob = JM63:JM80Goob JM:J<(30GO:J6&o X :JM010 0dGoob

b000'bMM 'B0b'bo = 2 x 21$-'bo = 42$.
o. .3Mo800 JM63:JM80Goob = $50 - $42 = $8
(06, .3MMG:J60(Je;:>0i:Q = $8/$42 19.05%) =
(,. 8M 0:Jo0 :JM01 0dG00'bo:

8mc::>oo6n 8(T)3000 !.!?"0333<i\ol> lla8!.!?a3 (3$ X 500,000 >dGoo'bo) $1,500,000

.'l<i103oc::>aoo<i1ao()c::>o >dGoaonl> i:Qn30!.!?06!.!?oon 140,000
l53Q()c::'Oor'in30 0dG0"'6o<i1oonbm3nb b3c::>8oboo3!.!?i'l80 8(T) 0ooo $1,360,000
"JGnoonb M0MCQQ6(T)00 +500,000
do<i\nmoi:QO 8M 0(J00 QMm 0JG00'bQ $2.72
8mc::>n060 8"'3000 !l2"00 03<i\nl> lla8!.!?oo $1,500,000
"OGnooob MoM!.!?Q6"'00S (500,000 + 80,000) +580,000
8M3300 QMffi >dGn"'bo $2.59

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.'J<i\03nc::>nooM36(Jc::'O "JGOt)OOU i:Q0301:QQ61:QOOO 140,000
fl33()c::>Oil<i1n3n >dGn"'6o<i1oonGm30G boc::>8nb003tJ1"'80 8"'3000 $2,360,000
>dGnoonb <i\""'!.!?06"'o" +500,000
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8mc::>oo6n 8M3000 !.!?"0033<i\nl> llo8CQ(J 0 $2,500,000
"DGnoool> M0MCQQ6Mo0 (500,000 + 80,000) +580,000
8"'3000 o<i1m 0dG00'bo $4.31

2. ,). JM63:JM00Goob <(30bo = $36 X 1.12 = $40.32

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a.:iG&oBve;:ioMoooe;:i JM6 30 M00 8 oob .3M'boGo.:i'b 0. $42.74 X 1.15 = $49.15
'bfi1(Q.:> .:ibe;:i.:i6(Q:Je;:'O <(3.:>bO(Q.:>6 = ($49.15/$36) - 1 = 36.5%
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'B"Gaool.:i 8oboi:Q3001 ('bfi1rQob 8oboi:Q3001):

651

6<>b<>'bou <>3ooou !QMMU
dMo8o<>
<>d3u
!Q<> M<?3(300U
(J!QO!QOUO ,.,a
Arditti, Fred D. Derivatives: A Comprehensive Resource for
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- - , and David W. Mullins Jr. "Convertible Debt: Corporate
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Bond Valuation Model for Corporate Debt and Its
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- - , and Myron Scholes. "The Pricing of Options and
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- - . "The Case for Convertibles." Journal of Applied
Co1porate Finance I (Summer 1988), 55-64.
Burney, Robert B., and William T. Moore. "Valuation of
Callable Warrants." Review of Quantitative Finance and
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Byrd, Anthony K., and William T. Moore. "On the Information
Content of Calls of Convertible Securities." Journal of
Business 69 (January 1996), 89-101.
Chen, Andrew H. "Uncommon Equity." Journal of Applied
Corporate Finance 5 (Spring 1992), 36-43.
Ederington, Louis H., Gary L. Caton, and Cynthia J. Campbell.
"To Call or Not to Call Convertible Debt." Financial
Management 26 (Spring 1997), 22-31.
Finnerty, John D. "The Case for Issuing Synthetic Convertible
Bonds.:' Midland Corporate Finance Journal
4 (Fall 1986), 73-82.
Green, Richard C. "Investment Incentives, Debt, and
Warrants." Journal of Financial Economics 13 (March
652
$18 $20 $24 $27 $32 $38
3 5 8 12 20 29
0 0 0 6 16 28
<>Mou 22.2 u(JM<>m'bo 8u<>3uo. 8<>duo-
O<>M8MOMO<>, MM(3<> <>dooou ca<>uo .)MOU 24$ !Q<>
<>d O<>M8MOOMO<> (J!QO!QOUO
dM08M od6oo<>
1984), 115-136.
Haugen, Robert A. Modern Investment Theo1y, 5th ed. Upper
Saddle River, NJ: Prentice Hall, 2001.
Hull, John C. Options, Futures, and Other Derivatives,
5th ed. Upper Saddle River, NJ: Prentice Hall, 2003.
Jen, Frank C., Dosoung Choi, and Seong-Hyo Lee. "Some New
Evidence on Why Companies Use Convertible Bonds."
Journal of Applied Corporate Finance 10 (Spring 1997),
44-53.
Jones, E. Philip, and Scott P. Mason. "Equity-Linked Debt."
Midland Co1porate Finance Journal 3 (Winter 1986), 47-58.
Lauterbach, Beni, and Paul Schultz. "Pricing Warrants: An
Empirical Study of the Black-Scholes Model and Its
Alternatives." Journal of Finance (September 1990),
1181-1209.
Long, Michael S., and Stephen E. Sefcik. "Participation
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Warrants." Financial Management 19 (Autumn 1990),
23-34.
Marr, M. Wayne, and G. Rodney Thompson. "The Pricing of
New Convertible Bond Issues." Financial Management 13
(Summer 1984), 31-37.
Mayers, David. "Why Firms Issue Convertible Bonds:
The Matching of Financial and Real Investment Options."
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Tsiveriotis, Kostas, and Chris Fernandez. "Valuing Con-
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(September 1998), 95-102.
Van Horne, James C. "Warrant Valuation in Relation to
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River, NJ: Prentice Hall, 2001.
Part VIII of the text's web site, Wachowicz's Web World, con-
tains links to many finance web sites and online
articles related to topics covered in this chapter.
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ea600 0..'l!Q.'.>Ob!QJO<> <>liQ3:J 2 (]8(3MMl.io
liolibol.i Clom.:i6b8tJO<> !Q<> :JG lialibo ()6!Q<> !QM<tJ<>MMli :Jd3lio !Q<>li.:il.i-
c.<>6<>J3t:Jal0 .:iMnli 15% !Q.'.> o"O?<>b!Q:JOO
o<>!Q<>Ob!Q:JO.'.> b(]alO dMM(3tJ6@J:JOO !Q..'l
m.:i360 o<>!QMb!Q:JO<> 8:JtJJ3litJ . .:i8nl.i 0.:iM!Q<>, JM:J!QO@JMl'i18.:i 8nnc::M 3.:iM.:i6@>aon
.:ijonaonl.i 50%-ol.ial3nl.i.
3.4 8MO:JO.'.>l.i dMM(3:J60:JOOl.i !Q.'.>
!Q<>6a 0 31'i1.:i8\l?D l.i.:i8n ll?" 3.7
li.:i8o l.i.:i 0.:i!Q.:il.i.:ib<>!QM 0 .:i6.:iJ3omn .:il'i1ol.i 33.3% O?" JM86.:i6o.:i
!Q06.:ib.:il'i1i;o6li, 063oli@>noo.:ili !Q.'.> 8.:il'i1<>o:J6Clo, M0(3
.:i8Ml'i1@Jn'b.:ionnli b.:il'i1i;oonli 8M8li.:ib(Jl'i1:Jo<> ()60?.:i
8M!QOM!Q:Jli 8M 0 oonll?.:i6. (0?<>3()0 3.:ial .:ilio3tJ, MM8 3.:il'i1.:i6@Joon .:il'i1 !Q<>
d:J!Q:Jo<>!Q .'.>M 0Mb:JOM0b 6.:ic::!Qn 0 .:i8Ml:JtJ6:JO<>).
m(J :3M.:io8 M:Jn@Jn l'i1Roo.:i 12% od3lin al(] .:il'i1.:i
l.i.:i6.:il'i18M 8M:J8li.:ib(JMMU ji;t)MM36.:i!Q? ffi(J dM.:in8 M:Jn@Jn 0.:io'bM!Q:JO<> 20%-
8CR:J 8:JMM:J ll?" 0()0 nd6oo.:i dMM(3:J6@Jn 8tJMM:J!Q06 8oad3lia
al(] .:il'i1.:i lin@>()<>Gn<>?

692
 23.

12. JM8.':l06008 Merry Land, 0 0b0MmM080 .':l0(;)380 .;&c::;06&0Clo, 0 06080!!?0 bod6oc:::oooo

0600Mooooob (!!0'B0M3ob (!!Mf'lb. 8o()bO(Q030(!! .;8ob0, d0MJb .\jM6(!!0 8Mo000 'bc:;3M(JC:::O
oc::;ooob 006803c::;Mo000, 808(!!060(;)0 .;(;) ,;(;)ob b0o80(QM, M0(!! 006 8M 0 000
Of'lc:!?f'l MOO oc::;ob 006803c::;Mo000 O(jf'l ()0M(jf'•<aomo. d0MJO 8Mm03boo()c::;o0 608(!!3oc::;0!!?
c:;o1'1oo()c::; ()d<'i103 df'lfJ000'bo !!?,, 0d3b 5 8c::;6% b0c::;o330!!?0Gof'l c:;o1'1oo()c::;oo0.
JMO(Q08MMOom06 (QO(QO b6ob oo8!!?0oi (!!0m06b8(!!0
c::;o330(!!0(300'bo. 6(!!Moom .;c;i:J<()M3oc::; .':lo61b, 1'1M8oc::;oG !!?0060060 bb30(!!0bb30 8b0(;)oooob
800(;) b03(Jm<'i1ooob c::;o330(!!0Goobm3ob, 0 0!!?0ob!!?oo0 200,000$-b m03obo 8M8b0b()-
1'1ooobm3ob. JM8.':l0600 Merry Land 'BC:::Mob 300,000$ 8M 0 ooob 0 0(!!0b0b0!!?b (Jd61030
dM6ooo(Q06. 80b 0C::OO(JC:::O .;d3b 2 8c::;6$ o0b0M(J)f'l00 d0MJOb 'bMooo61mo .;c:;i:J<()M3oc::;(Y)oOb
(!!000M03oornn, Mf'l8oc::;o(3 ooodc::;oo0 o00(JO(Qf'lb 8bf'lc:!?f'l(Q 1 8c::;6$-0(!!. JMO!.Q08MM0oob
8MmbM3fo 01'10G 0081.Qooo G0boG:

do6'ncn.:>(Qn JMQ(Qn6MMQOn $1,750,000

odMcnQJ()Mn MOC::OQ<>Gnoon 2,000,000
06'doc::i3<>1:Qn.:i60 l:Qud303l:QQOilMQO(Jc::>n 3.:ic::in 1,000,000
<>d(.30300 5,000,000

610 m06b0b 8oocwob momMO()c::;o 8b01'10 c::;o3301.Q0Goob0G?

3. JM8.':l0600 Fias 61.QMOom .;c:;3'()M3oc::;o .':loMo 8ool%03G, MM8 JM8.':l0600b OO(Jdc::;00
0 08Mo8()003Mb 1.5 8c::;6$ .':l61MG:J6&oooG 1.Q0 1.Q00 00 361081.Qo (40% G0 0 01.Q0b0b01.Qf'l
006033omom) 8M8030c::;oo. 0b0c::;o 30.':lo&0c::;i.Q0006crwoob i.QMMb, 61.QMoom
.':lot'1o <aodt'1MoG, Mf'l8 !!?ooo68(J<'i1ool> ()6op JdM6i.Qom 10% J(J.':lM6()1'1o 0060 330 mo 1.Q0
1.Q0'B01'13ob JMO'BoGoo6&o 6, 008MG03c::;006 Moc::;o 0 0Goool> ( 12%) ()61.Q0 JdM6i.Qom
8mc::;o060 l.Q0'B01'13ob JMO'BoGoo6&o 2, .36103oc::;o 0oMoo()c::; .;dG00b ( 10 dMM(306&o) ()61.Q0
JdM6(Qob o01.Q0b0b01.QOOOG 1.Q000o3MOb JMO'B0(30068o 3 1.Q0 f13o()C:::OOM030 00(300 ()61.Q0
008M0Gol> 'B0Gol>01.Q0 8M 0oooG JMO'BoGon6&om - 12. 006b0'bc:;31'1om 30.':lo&0c::;oG G&fi1()d-
8()M0, MM8oc::;o(3 oool.>0008000 61.QMOom .':lo61oG JMo8o<'i1o(J80oG.
'B"Goc::; <aol>&6o(;) JM8.':l,:,6o,:,b JdM61.Q" 0081.Qooo 3"C:::i.QOO()C:::Ooooo 1.Q0 G,:,,:,dGoM 30.':lo&0c::;oG
81.QoM80M::JMO,), MM(3i> 806 oo,:,3GM o0JM8Mooob .':lo&oGo0 ao-11 m030G 8oboi.Q3om
(.;m0b 0ooo):

JMQ(.!(n6MM(JC::O (Qu3<>c::>n.:>630300 $ 500

(Ql> 0MM3nc::io b3c::iqpb300 200
b.:io.:i6JM b3bbo, 12% 31>6.:>J30010 (()'b6'()63oc::8f'l'?3nc::in) -®Q
8n31:Qo6.:.6>3 3"C::CQQO(JC::QOQOn $1,300
13% .306'33c:;o n.3M01QJ()Mn Moc:;n01>Gnooo 500
15% CQ.:>d3381:Q30.:i6>3o(Jc:;n (QQOQGC!J(JMQOo 1,700
801c::in.:i60 3"C::l:QQO(JC::Qo.:> $3,500
<>dG°" CQ" l:Q<>80C!J3oocn
()060!::?(.!(QO(JC::O JildnC!J1>c:;o 500
a0'V60onc:;oooc:;n af'laoo0 420
301c:;n1160 3<>c:;(.!(QO(JC::QOQOn (Q.:> Ju.30&.:ic:;o $4.420

'bM 0 oo61mo M.':lo1'10Go()c::;o .:.8M(306ob 00dc::;oo61oornn 8Ml>.:>c::;M(Q6oc::;o0, MM8 JM8.':l,:,6o.:>

o0dc::;oob oc::;o()M"C!? soo,000$-oG 0.:>8M8()00 30 o.:>G .3<'i1MG06&oo.:>81.Qo C!?" 1.Q"oo031'1"8C!?o·
8Md8oi.Qo b,:,o,:,618Mb c:;o1'1oo()c::;oo"'bo !!?"'B(Jd6ooom f1.:>6G, 61M8 3018.':l.::.60,:,, t'1M 0 MMG
8mc::;o.:>6o, c:;ot'1G b(JmS(;OM 80&0 8oG EBIT-'bo. MOMM 0 .:>6o'b.:>(3oob m.:>68bc::;ooo
b,:,b08,:,(i)mc::;Ml> b.:>M3(;ooo oo.:> 006b 8mc::;o.:>6.:>e!< 200,000$-b !!?" 801b0c::;011.Q6oc::;o i.Q.:>oo 0 3(i)ob
o"6"J3omo .'.>Mob 40% MQMM0.:>6o'boo0c::;o JM8.3.:>6oobm3ob. Mf'l()f'l6}(3 6CQ0100(J)
.:>c:;i:J<(JM3oc::;o .306}0, i.Q"3(J03.:>m, MM8 md306 0 .:>d3m oo8U?ooo 06b8M(J806&000 JM8J,:,6oob
0Mdoc::;3.:>i:Qo.:>6 3.:>.30&.:>c::;i.Q.:>o.:>6CQOO"oo 0 .:>801t106ooobm3ob: 13 JMM(306&o.:>6o :Jo(i)3oc::;o
o.':lMm:JJ()Mo 01oc::;o 0.:>Goooo, 15 .3M01Go6c!!Jo.:>60 3.:>.3oc!!J.:>c::;ob 3:.Jdboc::;ooo, 13 .'3(;)01806&0.:>60
"OGoooo !!?" f1300c::;o0Mo30 "0Goo6o.

693
 v6!!!" .3jr<>6<QDm
!!!"<a<>M30G Jr<>ncao 8 on68o 4, G.:.o.:.6Jr<> l>nl>boG .3Mr<>Gn68ol> o"!Q"b<Qol> Clo8!!!Do !!!" .3Mo3o-
"JGMU v6!Q<> .3jr<>6!Q:JU !QC>f8<>M30G JM:Jf80GO:J68o 2, dMMG:J68nooG !!!"
o<>!QC>UC>b<>!Q:JOOU Cln8!!!Do· (Jf8MM 8n8oG, R06G, Mr<>8 "JGOOU v6!!!"
Jr<>8.3.:.6ooG <>d803000G 30%-G.
0. M.:. .:.Mou Jr<>8.3.:.6ooG M:Jr<>M0.:.6o'b.:.GooG Cl:J8!QDo?
6. mv !!!" "JGOOU M!Q:J6r<>-
O:JOO, M.:. oj6no.:. Jr<>8.3.:.6ooG l>8MVJ8VM" !!!" 8o8!Qo6.:.MD

o· MM()MM v6!!!" OtJMU nu ca.:.Go.:.60 mv !!!"3V03:J0()) .:.oGr<>-

onl>G?

1. .). YABLONSKI YA WITZ

8M8::JOI> omm i>J(3ni>'b::J $2.00 $1.25
'{30UOUI> (Qi> 8M3oooli JM::J'{30(30::J68o 12 8
t.i.:.o.:.'bmM 'B"t.io 0mm "JG°"'bo s24 10 s
Yawitz-oli .:.jooM6omooli Yablonsk-oli <>dooooClo Clom.:.3.:.'boo.:.
(m.:.o 8Moo.:.3li .:imoao.:.li) = 10$ X 1.20 = 12$ omm .:.doo.:.'bo

Jr<>:Jf80Gon68o = 12$/24$ = 0.5 06 Yablonsk-oG :JMm 6.:.bn3.:.Mo "JG°" Yawitz-oG

"JG 0" 'b:J.
x
"JGonooG M.:.r<>!Q:J6r<>o<> = 800,000 <>dGn" 0.5 = 400,000 "aGo.:.G.

6. o>t!!><'iR36oc:::io J"'8.3>6oou 8"'&:JOv (vm>u3ollo) $ 5,000

8o8MJ(3:J3vlln 0 v8M(338-;:ic:::io fi33-;:ic:::i30<'\030 vJ(30:JOO (vmvu3ollo) 2,400
a...,03ov n<'im >doov'1>3 $2.0833

Clo8dn6o Jr<>8.30600G 8M():JOC> ;)Mm .:.doo<>'bn o'bM!Q:JOC> ca.:.GnG.:. !!!" 8M():JOOU

JM:Jf80GO:J68om.
0 . G.:.o.:.'bMr<> ca.:.Go :JMm .:.joo.:.'bn: 2.0833$ X 12 = 25.00
G.:.o.:.'bMr<> ca.:.Go :JMm <>doo.:.'bn: 2.0833$ X 11 = 22.92
Clo8mb303.:.Clo <>dGooG ca<>l>o o'bM!QOO" 24$-!Q.:.6, MC>!Q 0.:.6 o'bM!Q:JOC> OMOJ "JGo.:.'bn
8r<> 0oo.:.. 8or<>M:J Clo8mb303.:.Clo .:.joooG ca.:.Go OGD8<>, M.:.!Q 0.:.6 8GOM!Q:JO" ca.:.GoG.:. !!!" 8r<> 0o-
ooG JMOf80GO:J68.o. ocand8n.:.6o o.:.'bMoooG (QMMU, R3n6
ca.:.GoG.:. !!!" 8r<>o:JOOU JM:Jf80GO:J68ol> Clo8GoMoo.:.G, mv C>M oj6oo.:. Gn6oM-
.:.6/!QC>
2. 1.5 JMOf80GOD68om, Groove JM8.3.:.6o.:. 8"8r<>l>Go8G 300,000 "JGOC>U 28$ x
300,000 = 8,4 G.:.o.:.'bMr<> Tongue .:.joooo0Gm30G. nu
.:.3'.:.Moool> mr<>6 0oG 1.4 Clndn6oG 8omr<><Qom, Tongue-nu
.:.j803000 nj6000 400,000$-.:.!Q !!!"Groove-I> 1
()OtJnGn CloM6'tJ8nG ao8!!!0o Clodo6oG 8omr<><Qom .:.Mou

8o8i:Qo6.:.mo 1>j8n3000 $25.0

.:.d803000 (l'i806i:Q.:.) 37.4
3.0
$65.4
8o8i:Qo6.:.mo $12.0
17.0
U<>l>J(30M 36.4
$65.4

694
 23.

3. 0, 6.

0630u<!!>OG00
1 $2,300,000 $1,000,000 $1,300,000 $ 1,101,100
2 2,645,000 1,645,000 1,181,110
3 3,041,750 2,041,750 1,243,426
4 3,498,013 2,498,013 1,288,975
5 4,022,714 3,022,714 l,320,926
6 4,626,122 3,626,122 l,341,665
7 5,320,040 4,320,040 1,356,493
8 6,118,046 5,118,046 1,361,400
9 7,035,753 6,035,753 1,358,044
10-25 8,091,116 7,091,116 8,254,059*
= $ J9,807,198

qpl.io, fi10G 0!'i1ol.i 19.8 (J6!.J?0 MM8

nli MM8 t'QOUJM6&oli
3060J3nmli 60J0t'!?nool.im3ol.i 10-\'!?06 25 fi3n6 06(Jo&n&oli
80!.J?0b!.J?nool.i 9 t'QOUJM6&oli JMD930Gon6&li 4.303, 25 JMD930Gon6&li, 5.467-1.i.
306l.ib303no0 5.467 - 4.303 = 1.164 0MOU 60J0t'QDOOU t'QOUJM6&oli JMD930Gon68o
06()08olim3ol.i, o6tJD00 8n-10 t'Q0 25 Ol(J
308MotJn6no01 93(JOJ(300l.i,
8GoMDMt'QD6o 306l.ib303no0 l.i08 eo93fi108!.J?D 308M.
4 . .). 50,001 0dG00 X 65$ = 3.250,065
49,999 0dG00 X 50$ =2,499,950
ondn6ol.i 9301.io = 5,750,015
0jeool.i = 100,000 0jeo0 X 55$ =5,500,000
'b!'i1\'!?0 J0l.io()Mo 0deonool.i = $ 250,015

DJMOM8ool.i od6no0 1,500,000. 0808M8 J0l.io(JMO 0J(30M6n!'i1noo

DJM6M8ool.i 'bM8onfi1
l.i0Jofi1ol.iJofi1M{Q, 0J(30M6DMDOO !.J?O{Q
6. MM00M(JU006o onm030'bnoo01, 0JGOM6nfi1nool.i013ol.i 0P1linoMOU t'QO!.J?O
8M8030eo0 on01030'bno0'bn 1 nli on8dn6o JM8J06ool> 60!'i1-
808no0l.i. J0l>o(JMO 0J(30M6DMD0ol>m3ol.i ()JD01nl>o oj6no0
DJM6M8ool> (J!.J?O!.J?Dl> 80m 0801.> 30Jnmno0,
Ol(J ol.io6o o8Mj8D!.J?DOD6 8l>303l>0{Q on01030'bnool> l.i0J0l>(JbMt'Q.
o· t'Q0 8nd06o'b8nool>
onod860l> 'bM80DMOlO 8M8030(300 0J(30MODMD0ol>m30U
onm030'bnool.i 8M01bM36ol.i013ol>. Ol(J8(30 1
l>0J0l.i(JbMt'Q.
= 3,250,065
49,999 X 40$ = 1,999,960
ondn6ol> 9301.>o =5,250,025$

nl> 0!'i1ol> 30!.J?MD 5,500,000$ 0060 l.i000'b<'lM

30l>0on600,
on8mb3n3<>00 1 Ol(J 0J(30D000
.3M8n6eo(J!'i1 0deoM6nf'1o6l>
onm030'bno0, DJM6M8ool>
OMMOO (JO!.J?0
<>deoM6nfi1noo G()t'!? on!.l?n0li !.J?<>fij.:ifi1nool>
onm030 'bno0 OJ6DOM{Q0 01()8(30 1 ob30
nd6no001 8M@Jo 30eo0 8 00JomM6 ()'{3MM
30<'1000. JM6J(JM06eo08 JM@J00(30(JM oo8do6ooli
onm030'boool.i306 !.J?0(330, 08330<'1<:>!.J? MM8

695
8

JfYl80.:.6o.:. (J6tQ<> Ol:JfYlb Clnbm.:.3<> ifYlb 500,000$

b.:.o.:.iMfYl
5. 0. 0.:.P1o 8onP1 <>doonoo = 20$ X0.79 =3.950.000
'lJ<>bo = 20$ X 1.40 = 28$ nP1m .:.j 8 o.:.i 0
0<i8fYlUl:JOtQ3ob m.:i6b.:. =3,950,000 <>joo<> X 28$ = 110,600,000
(J'BMfYlbo = $110,600,000 X 0.80 = 88,480,000
m.:.36ob o"U?"btQ<> = $88,480,000/5 =$17 ,696,000
(J8GMfYlbo =$110,600,000 0.20 =$22, 120,000
EBIT 8fYl8b.:ib(JM:JOObm3ob:
(J'BMfYlbo $88,480,000 X 0.12 = $10,617,600
(J'BMfYlbo m.:.360: 17 ,696,000
()8GP1fYlbo $22, 120,000 X 0.13 =
EBIT: $31, 189,200
b(Jmo 25 EBIT .:.P'i oj6oo<> b.:iJ8<>P1obo
8fYl8b.:ib(JM:JOobm3ob.
0. 88,480,000$ x 0.10$ = 8.848,000, (Y)Pl bb3.:. UOtQOtQ[JUOJ<i6 :JMOl.'.ltQ, oj6no<>
$29,419,600. EBIT <>M oj6no<> b.:iJ8.:iP'iobo 8fYl8b.:ib(J-
P1ooobm3ob.
0 . $31, 189,200 .:.P'iob EBIT 8fYl8b.:ib(JM[JOobm3ob.

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8

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709

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"80@.;n 069:JMM80oool>00130G, 6,ob;pi Christine R. Hekm::m, '"Don't Blame Currency Values for Strategic Emxs."
Midland Corporate Finance Journal 4 (Fall 1986), 45---55.
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Cl6o6::ioClo od6::io0 2.37%-001 'l.JMOQ?cYl600'1>::i.

Abuaf, Niso, and Philippe Jorion. "Purchasing Power Parity
in the Long-Run." Journal of Finance 45 (March 1990),
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Bhagwat, Yatin, Deborah L. Gunthorpe, and John M.
Wachowicz Jr. "Creative Export Financing: Factoring
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- - . "Don't Blame Currency Values for Strategic Errors."

732
 Midland Corporate Finance Journal 4 (Fall 1986),
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Hill, Kendall P., and Murat N. Tanju. "Forfaiting: What
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Part VIII of the text's web site, Wachowicz's Web World,
contains links to many finance web sites and online
articles related to topics covered in this chapter.
733
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18 1.196 1.428 1.702 2.026 2.407 2.854 3.380 3.996 4.717 5.560 6.544 7.690 18
19 1.208 1.457 1.754 2.107 2.527 3.026 3.617 4.316 5.142 6.116 7.263 8.613 19
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18 9.024 10.575 12.375 14.463 16.879 19.673 22.901 26.623 55.511 112.455 426.879 1477.892 18
19 10.197 12.056 14.232 16.777 19.748 23.214 27.252 31.948 69.389 146.192 597.630 2216.838 19
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. 18 0.836 0.700 o.587 0.494 0.416 0.350 0.296 0.250 0.212 0.180 0.153 0.130 18
19 0.828 0.686 0.570 0.475 0.396 0.331 0.277 0.232 0.194 0.164 0.138 0.116 19
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8 0.376 0.351 0.327 0.305 0.285 0.266 0.249 0.233 0.168 0.123 0.068 0.039 8
9 0.333 0.308 0.284 0.263 0.243 0.225 0.209 0.194 0.134 0.094 0.048 0.026 9
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20 0.087 0.073 0.061 0.051 0.043 0.037 0.031 0.026 0.012 0.005 0.001 0.000 20

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17 18.430 20.012 21.762 23.698 25.840 28.213 30.840 33.750 36.974 40.545 44.501 48.884 17
18 19.615 21.412 23.414 25.645 28.132 30.906 33.999 37.450 41.301 45.599 50396 55.750 18
19 20.811 22.841 25.117 27.671 30.539 33.760 37.379 41.446 46.018 51.159 56.939 63.440 19
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16 46.672 50.980 55.717 60.925 66.649 72.939 79.850 87.442 138.109 218.472 541.988 1311.682 16
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18 61.725 68.394 75.836 84.141 93.406 103.740 115.266 128.117 218.045 371.518 1064.697 2953.784
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10 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.889 5.650 10

16 14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 8.313 7.824 7.379 6.974 16
17 15.562 14.292 13.166 12.166 1 I.274 10.477 9.763 9.122 8.544 8.022 7.549 7.120 17
18 16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.201 7.702 7.250 18
19 17.226 15.679 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.839 7.366 19
9.129 8.514 7.963 7.469 20
9.l:m 9.077 $.422 7;843
10.274 9;427 8.694 ··s.055
1.0.567 !?.64'1. 8;855 8.176
10)57 9;779 8.951
10.962 .9.915 .9.042
 n
PVIFA;, 0 = 1/(1 + W = 1 - [1/(1 + WJ
i

6 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326 2.951 2.643 2.168 1.824 6
7 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605 3.161 2.802 2.263 1.883 7
8 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837 3.329 2.925 2.331 1.922 8
9 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031 3.463 3.019 2.379 1.948 9
10 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192 3.571 3.092 2.414 1.965 10

16 6.604 6.265 5.954 5.668 5.405 5.162 4.938 4.730 3.887 3.283 2.489 1.997 16
17 6.729 6.373 6.047 5.749 5.475 5.222 4.990 4.775 3.910 3.295 2.492 1.998 17
18 6.840 6.467 6.128 5.818 5.534 5.273 5.033 4.812 3.928 3.304 2.494 1.999 18
19 6.938 6.550 6.198 5.877 5.584 5.316 5.070 4.843. 3.942 3.311 2.496 1.999 19
20 7.025 6.623 6.259 5.929 5.628 5.353 5.101 4.870 3.954 3.316 2.497 l.999 20

t;
 1,,.)CJ'ZJ.)c:!;'(I] l,,.)Cl'ZJ.)c:!;'(I]
860Cl360c:!;'l'loO!!l.'.>6 z 8b.'.>6i0 860Cl360c:!;'l'loO!!l.'.>6 z 8b.'.lt\10
l>l!!>.'.>61!1.'.ltl'il!!>'ZJC!;'O 8.'.>6il3b603 .)6 l>l!!>.'.>61!1.'.ltl'il!!>'ZJC!;'O 8.'.>6il3b60!!1.)6
&.'.l!!l.'.lbtl'i.'.l 8.)t\13e3603 &.'.l!!l.'.lbt11.'.l 8.)6i:Je3603
0.00 0.5000 1.55 0.0606
z 0.05 0.4801 1.60 0.0548
a..,l'iiGb6o3 ..,5
0.10 0.4602 1.65 0.0495
0.15 0.4404 I.70 0.0446
0.20 0.4207 1.75 0.0401
0.25 0.4013 1.80 0.0359
0.30 0.3821 1.85 0.0322
0.35 0.3632 1.90 0.0287
o.40 0.3446 1.95 0.0256
0;45 o.3264 2.00 0.0228
0.50 0:3085 2.05 0.0202
0.55 0.2912 2.10 0.0179
0.60 0.2743 2.15 0.0158
0.65 0.2578 2.20 0.0139
0.70 0.2420 2.25 0.0122
0.75 0.2264 ·2.30 0.0107
0.80 0.2119 2.35 0.0094
0.85 0.1977 2.40 0.0082
0.90 0.1841 2.45 0.0071
0.95 0.1711 2.50 0.0062
I.00 0.1577 2.55 0.0054
I.05 0.1469 2.60 0.0047
1.10 0.1357 2.65 0.0040
1.15 0.1251 2.70 0.0035
1.20 0.1151 2.75 0.0030
l.25 0.1056 2.80 0.0026
1.30 0.0968 2.85 0.0022
1.35 0.0885 2.90 0.0019
1.40 0.0808 2.95 0.0016
I.45 0.0735 3.00 0.0013
1.50 0.0668

V l),)3ll}-
Z 8,)ll?,)b-
jl}30n a,)t'l\ebGn3 ,)6 8,)M:Ji:a6n3

l)()ll?,)bt'l\3on n36'\m
8b()t'l\nb na 8,)830om, t'l\Ma
H336 83M6836'\3l>3ob
36'\mo ab()('l\3 ,)6 83MMlJ. Ol';'.J H336 a3b';'.jt'l\b
8b,)Ml), ,)6
n1:1M 1.5
,)6 a38n 8,)t'l\:Ji;3603, nan ';'.J61l?,) O:JMb U';'.JM,)OlOU a,)t'l\ob6n3
v H3n6 3b31l?,)3m, MM8 ab o3nb,)o,)83o,)
6.68%-b. ,)8()3,)fll,)ll?· R336 3airl3,)m, MM8 ,)MUl)OMOU 6.68% MMa
1:131l?noo o,)ll?,),):Fit'llo3ou t .5 a,)11?,)bfllnm.

744
.J6brri!!!?(Je(ll"lo - Absolute-priority rule ob 0fi1ob m06b0, od308-
- oobo, MM8e::ob 8obo1:1wom JM8.3.J6oob 8"JMe<'1ooob !:Q0006100<> C!?61Mmo .361f'lC!?(JJ(30ob
...,5 M:.JMM()<>6o'b.:.Goob f!?MMb, fi<>8MO:.JM<>b 'b:.JC!?O<>C!?:.JOO bo613i:ooob
"dGoM6o61oonb 8MmbM36000 .3061- bobom, J<>OM6ob 8oboC!?3om l>o 0 0C!?<>b0b.:>C!?M 8o'b60-
t'flo3Clo O?" oob013ob. (mo30 12).
.:>j(3oM6o61oo8.:> 30 61 30 61.,<Bot'flo. <:>8Ml'i10o'bo(3oob 0 06f.1050 - Amortization schedule -
(m.,30 23). .3t'flM-
"30M8.J0()Mn - Automated clearinghouse Go68ooob !!?<> do61omo(QO m.:>6bob 3fi10930JO, bobbob
(ACH) - 861.,6bq]o61o, C!?093<>fi13ob 30Q'..?ob 8oboC!?3om. (m<>30 3).
.)Mob b"f!?:.JdM'bn8M61M fioJnb 8"f!?.:>610(3b3ob <:>8b060 0 Mo0 - Partnership - oo'b6ol>ob f'lM3<>6o'booob
8:JC1>Mf!?O. (01.)30 9). 9JMM80, 8oboC!?3001 f'lMo 06 fi108C!?o6080 .3ofi1o
<'>JM[Ji:QO@)o30 - Letter of credit (UC) - 8ob080 8b061ob <>fi1o.:i6 oo'b6obob 8ob.:>J(Jmfi13000.
.3ot'flMo.:> o"6Jnb), 61M8 08b0603MOQOdO .30fi1860MMU <>j3b m<>600.)MO
8'>f!?Mbf!?ob
.30MMO:.JOom, 08 d:J8mb3:.J3.:>oo, ffi(J .:>8.:>b 3061 <>8b06<> 0Mo 0oao,
08 0 bClo61.:>f!? 8.,8Mntto6oo" ofi1m 06 fi108M!:Q:.J6080 83b<>J(Jmfi13b
61M3f'l61(3 3.:>61.:>680.:>. (m.:>30 11 C!?" JjM6Q'..?ol> {m030 2).
. 24). <:>6 0 0P10Cl-<ti0de(lM.:>/063Mouo - Invoice - b.:>O(Jmo, j30-
- Probability distribution - m<>fi10, 8oofi1, 8<>!!?0(3:.J"
6.:>J61ooo, dQOG03b
Cl38mb303om8.:> !Q<> 8M8b0b(Jfi13ool> 9J0UU (!?0
iJ?<> 8.:>bm.:>6 Clo8mb33- 8<>t101Q;3ot> .3ofi1MO:JOG. (01030
3omMoob (m.,30 5).
0e;oomf'100G - Probability tree - 06 8.:>®61o- - Public Company accounting Oversight Board -:
8of!? 0 f'l8o, 063ob®0Go3om.:>6 0fi108M80000060 b0'bM3<>!QM:JOfi1030 Mfi1306o'b0000,
6oJ.:>- Clooj860 2002 b0fi1o<>6ob
Q?OOo. 8obo 9JM618o 8"3b bob 0M83ob, 01001M- J06M6om, b03i:<>MM JM8.306ooool> 0(JQ'..?08 'bo JM6®P1M-
6M®o oo618Mof!?8:.J6b 8Md61oMO:.JOob 063ob8MM:JOOb !);10 b<>'bM8<>C!?MQOOb
361m t'iM8oe;:o83 CloC!/88b. 068QM:Jbooob Q'..?.:>U0(3030Q'..? 1 b08ofi1-
(01.:>30 14). Q'..?0 8Mbbo-
"C::l§[J1'ii5.:ie;o()c:;:io - Opportunity cost - fi306b 6ooob 8M8'b0C!?:.JOOb013ob. (m030 1).
803fi1 b.:>(JJo01obM .:ifi1fi336ob, bb3.:i C>6 0 0{1')0CllibMM[JOnb - Disbursement float - (!?MM
Clob0de::M 8'b0 JM8.306oob 8ooP1 fioJob 't3f'lbt§om 30 0 'b036o!Q06,
063ob60P'>ooob0m3ob. (m030 12). Jf'l8.30600G b<>fiQJM 06 00ModOf!?06 8Mbb6ob
8M(Jl);?O - Yield curve - 't30l>o060 8M8:J6@)08f!?:J· (m030 9).
08f'l6.,33ob0 !:Q0 bo8oo't3ob oM61ob 0630fi10Clbof'16l[J2iob 3o&ri6o(JM[Jb0 - Remote disbursement -
0 P'>.:>930JO 9J0boo6o b0Gc!!Jo80, 8ob:JtQ3om00, JM8.3<>600 0.:.8Mo3P1b
(m030 2). fioJb 006Job
,:,8rryfrl"o'b,;(3o,:, - .Depreciation - doMom.:>Q?o 0j@Jo3ooob m030Go M<:>f!? 0 06
Gob8o8vr1io o0Q?08060 80jbo80c:;:i(JM0(Q o'> 'b0MQ'..?f'll> fiJJOU M:J0-
dMf'l(Q(jj(JMOo, 0.>6b0 d:.JMOMC!?ob !QMM. (m030 9).
9306.:i6b(JMO .>6 0.>6'1003000 0b.>b3om, 0b!J;![JMMMmo6 0o - Underwriting - 9J<>bo060
.>6 b.> 0->Q?0b0b0C!?M .>6 M61o- ::JOC\?30 Cl38(Q 0M8o b<>'.$i:0MM(Q ()0iJO(Q3obm3ob; o8o-
:JMC1l->Q?· (01030 2). t§Jb8ob <'1nliJOU b0J(JOl0M m03'bo 8oc;ooo,
60'b.:, - Depreciable basis - b.> 00f!?<:>b.>b->C!?M
.>6 00fi10Cl3ooob.::im3ob, jM60061030 0dt!.lo30G 9J.:>b'8o o<>t1o!Q3.:.bm06, 0bo30 fi1M 0 f'J(>)G

745
 Cl(J.:.8.:.3cz.iou 81:f.:.!'i1o 3"cz.'CQQO(Jcz.>Do.:. CQ" (J'bfi1()63ocz.i-
8""93u 93.:.uo.:.60 3.:.!'i1.:.680M[JO(Jcz.' 3.:.6-
m.:.3uao.:.u. (m.:.30 19).
&5n;>o6J(i)&omo6 0ob bo61QoJ060 - Underwriting syndicate -
u.:.063::JU80(30M o.:>6J[JOOU, JM8.3.:.6oooou, (QMM[)Oomo
0.:.afi1mo.:.600.:. .:.bcz.i.:.CQ 0.:.8MCl3oo(Jcz.io 93.:.uo.:.60
C!Woou 0.:>1:fO(Q3ou 8o'b6001. (01.:.30 19).
,m-•m"'""'""' - Annuity - 01.:.6.:.o.:.fi10 93(Jcz.>.:>(QO 0.:>(Q.:>b(Q[JOOU
.:.6 d[J8Mu.:>3cz.>QOOU U::JMO<>, O<>M8MdMOOcz.'O .3[JMO-
M(Q[)OOU 0 .:.61.>.:. !'i1o 8 b3oCQ.:.6. R3a(Jcz.>Dofi1030
.:.6()08080!.> Clo801b303.:.Clo, o<>CQ<>b(Qoou .:.6 93(Jcz.'"CQ
d[J8Mu.:.3cz.iaou "CQ80cz.'O <>d3l> l:fM3Qcz.'O .3[JMOM(QOU
(ocz.iou) OMcz.>MU, oo6.:.uo.:.!'i1o .:.6(Jo8o8ol> (QMMU,
l:fM3Qcz.'O .3[JMOM(QOU (Q<>U<>Ol:fOUdo. (01.:.30 3).
;:,PS060G&::i8<>e()P?o t'?o6Jo - Unsystematic risk - <>doooooG
.:.6 u,:,063ol>8ooo(Y) .3Mfi1893ocz.iou G.:.fi13oocz.iou (33<>-
cz.ioo<>(QMO<>, MM8ocz.ioo .)M Cloodcz.ioo.:. ,:,obu6.:.G o.:.'b!'i1oli
'bo 0 .:.3cz.io6001. o0 o Cloodcz.ioo.:. <>(30cz.'OO(Jcz.'O od6ou
CQ03ofi1uo930J<>(300li 0'bo01 (01.:.30 5).
Gobbo(io - Unsecured loans -
93(Jcz.'<>(Qo 3.:>cz.>CQOO(Jcz.>Ooooo, fi1M8ocz.ioo .:.fi1 .:.fi1oli
(J'bM(J63ocz.iH(Y)930cz.'O Gb3.:>(Q.:>lib3.:. G.:.boli .:.d803000G
00M.:>M010. {01.:.30 11).
0t1loo@l6l0t.Jo - Arbitrage - MMo <>d803oli 8Mdoo6.:., !'i1M8-
cz.ioooo, fi1o.:.cz.i(J!'i1.:.CQ, ofi1018.:.6o01ou0 .:.6 .:.!'i1.:. 93 !'i1001 .:.!'i1
0.:.6l.ib3.:.3CQOO<>, 6.:.l:fO(QO 0.:.93.:>(Q (Q.:> 0.:>l:fO(Q(JCZ,'O d30M<>(Q·
(93.:.Go.:.60 l:fO(Q3.:>- 0.:>l:fO(Q3.:>). (01.:.30 17) •
C[l'f.3<'.>bQOoG mo(Y)li1n.:. - Arbitrage pricing
theory - 010Mfi10.:., fi1M8cz.ioli 8obo(Q3n01.:.o <>d803oli
93.:.l.in (Q.:>8MJO(Q00(Jcz.>O<> 8fi1.:.3.:.cz.i <(J"D8MM'b:J (Q<>
0 .:.C!?.:.80830 8 !'i1Mcz.il.i 01.:.8.:.CJMol.i .:.fi1oo8fi1<>iJoli o<Bod-
80.:.60 8Md8oC!?oo.:.. (01.:. 30 5, C!?"6.:.!'i1010 o) .
(b.:i6'tJnlio) - Assigned (or
stated) value - .:.doooli 6M8o6.:.cz.i(J!'i1o
fi1M8ocz.ioo R3o(Jcz.ioo!'i1o 3 0 .:.8MCJ 30 oou,
'B.:.t.i0o'bo (Q<>ocz.i.:.. (01.:. 30 20).
0j003n6ob 0!.>1;!011?3"' - Sell-off - JM8.3.:.6ooli
3068M<BOcz.'OOOli o.:>tJO(Q3.:>, MM8ocz.ioo (36Moocz.io.:.
6.:.oocz.iMOM03 8"80(!?3001; .:.6 801cz.io.:.6.:.Q? JMB.3.:.6001.i
0 .:. 80CQ 3001, 8 6Moocz.io fi1M 0 Mfi1G 6oo.:. 8M<Bcz.>Moo010
cz.'OJ30(Q.:>(30.:>. (01.:>30 23).
<>d&o3000G G[JJ(J(y}O@Jo'l:h'.>(30.:> - Asset securization - oli .)MOU
.:.d8o 30 ooli l.i.:.(i]o'bo(i] 3(Y) <BM6Q?Clo 0 .:. 0!'i1010.:.6 0ooli
.3fi1(Y) 80 t.io C!?" Clo8C!?oo li.:.fi1 0'b 0!'i13(Y) 93 M6(QoCQ<>6 .3fi1M-
oo68oooli 0.:.80CQ3<> .:.d@.>0300001 (J'bM(J63ocz.i8(Y)93ocz.io
'B,:,lio.:.60 'BM!'i18.:.Clo. (01.:.30 20).
'i'30Goei60 "·"'''·'"''m"
Asset-backed securities (ABS) - u.:.liolibM 'B.:.lio.:.60
fi1MBocz.i01.:. .3MMGo68ooo (Q.:> 01.:.3601.i
0 .:>Q?.:>b(Qooo b(Y)M(300cz.'CQOO<> 'B(Jcz.'"C!?o 6.:.J.:>Q?00001
.:.d803oooli (i]o'bo(i]3o(Q.:.6. (01.:. 30 20).
0j&o3Moob JPl[l<(J0(30::Jb6:J?io - Activity ratios - 8.:.R30600-
cz.'Ocz.'000, MM8cz.iooo 8 .:.li.:.b.:. 30 6 (i].:.8Qw6.:.C!? o93od8o-
.:.6.:.CQ 080 6001.i JM8.3.:.6o.:. .:.d8o 30 ot.i. (01.:. 30 6).
0d0Dooll li08M/:tfl0 - Equity carve-out - Cl3ocz.iMoocz.io JM8-
746
.3.:.6ooooli <>dooooou li.:.'.li:.:.fi1M 8.:. 8oCQ 3.:., fi1M8ocz.i'boo
88.:.fi1m3[JCZ,'O JM8.3060,:, .:. 0 fi1docz.>OOU JM68MMcz.'Ol.i
Clo6.:.MR(J6oo.:.li. (01.:.30 23).
- Stock dividend - (Q.:>8.:.8ooomo
.:.doooool.i o"C!?"G08.:. JM8.3.:.6oou <>d(30M6ofi1ooou013oli.
bCJofi1.:>(Q 0 .:.8Mol:fo6oo.:. 93(Jcz.><>Q?O (Q030(Q06CQOOOU
6.:.03cz.i.:.C!? 8.:.0101.:.6 ofi101.:.C!?)· (01.:.30 18).
''dGoo6ob - Reverse stock split - .:.doooooli
0 .:.ofi1mo.:.6 0o.:., MMCQOli"G 0 .:.8M(308()cz.io <>dGooooli
M<>(Y)(Q06Mo.:. 8(30M(QOO<>: 8.:. 0 .:.cz.io01.:>Q? 1-2 .3MM-
.3MM(30001 .:.doooooli 8.:.0!'i101006ooo01, li.:.C!?"G 01001M-
O(Jcz.>o .:.dooM6oMo ofi101 .:.b.:.cz.i <>doo.:.li MMO
d3ocz.io .:.doooli013oli. (01.:.30 18).
<>dGooooG o.'.'>8('t}UtfOC!;'3" - Stock repurchase - JM8.3.:.6o.:.
080806801.i 8oofi1 m.:.301.io .:.doooooG 0.:.8Ml.il:fo(Q3<>
80(Y)M<>Q? o.:.'b.:.fi1'b 0, .:.6 8o6CQofi1001 (li<>8o6CQOM(Y)
CJ 001.:.3.:. 'boo.:.). (010 30 18).
<>dGnoonli o<>tl"l'CJ<> - Stock split - 0.:.8(Y)oo8(Jcz.io 0doooooli
M0M(Q::J6Moou o" 'bMQ?.) .:.doooooli 6M8o6.:.cz.i(JMO
(Q<>Jcz.>oooli b,:,(i]'.li:'bo; 8.:.c,.:.cz.io01<>Q?,
.:.doooool.i o<>iJM'Bo01, .3fi1M.3MM(30001 2-1-Clo, <>dGooool.i
6(Y)8o6.:.cz.i()Mo 8(3oMQ?::J00 1 ofi1mo <>doooli
6M8o6.:.cz.iv!'i1o od6000 6.:.bo30(i\o .:.don<>.
(01.:.30 18).
.:>j(3nob - Ticker symbol - v6oJ<>cz.>()Mo,
.:>UM[J0001 JM(QOMQO(Jcz.>.:>Q? 'B.:.l.io.:.60
CQOOOU C!?" 'bo.:.!'i1o li.:.063ali8ooo(Y) <BM6CQoooli. 83ocz.>.:. 'bo
808.:>Q? ol.io6o 008MOij::J6::JO.:> 0,:, 'b::J01[JOOO (!?0 93.:>U01.)
J3M8ofi1ooou 8M8li.:.b(JM::JO<>do. OQ?::J680930J.:>(300U oli
li8o6M(,M.:><BO(Jcz.'O 8001MQ?O doM001.:>Q?0Q? c,.:.63001.:>MQ?<>
8oobfi108o8o li.:.vJ(J6oClo li.:.8ocz.ioc,fi1.:.93(Y) M.3oM<>8M-
fi1oooli 8o[JM 1 <>U030 od.:.bo.:.6 80JQMOU lio8oMcz.>MU.
5 (Q<> 23).
"'·"'"h.,,mm - Shareholders' equity - .:.d80-
3oooli 801cz.io06 '.l(;.:.al.i c,.:.8MJcz.'OO(Jcz.>O 3.:>cz.>Q?OO(Jcz.>OOOU
801cz.io.:.60 '.1(;08o, ,:,6 Ub30 U08l:f3Q0001 1 JM8.3.:.6ooU
R3ovcz.ioofi1030 .:.doooooli li.:.o.:.cz.i.:.6u(Y) (6(Y)Bo6.:.cz.iv(i])
(Q08.:>8::JO(Jcz.'O J<>.30-
8.:>cz.io (!?.:> (Q.:> 0fi1M3ocz.io 8M 0[JO.:>. (01.:.30 6).
- Present value -
CQOcz.>o, 8o8(Qo6.:.MQ (i\.:.080 8M8.:.3.:.cz.io
'B(Jcz.>OG/01.:.6boli .:.6 c,.:>Q?<>b(Qoooli 6.:>J.:>(QOOol.i, Clo93.:.-
lioovcz.iofo.:.8M013cz.iocz.io 0.:.6Li.:. .3!'i1M(3::J6<!!Jvcz.i
0 .:.6.:.J3omClo. (01.:.30 3).
- Balance sheet - (QMJ(J8o68o, M(Y)Bocz.iCloo
Clo'.li:.:.8 0ovcz.io.:i J(Y)B.3.:.6001.i 'Bo6.:.6liv(i]o 8Q? 0M8.:i(i]o(Y)o,:,
(QMMoU 8M8068oli.:i013ol.i, ol.i .:iR-
306ooli, MM8 801cz.io.:i6 <>d803000 = 801cz.io.:.6
3.:>cz.>(QOO(Jcz.'OOOoli + li.:>J(J01.:>Mo J.:>.308.:.cz.io (li.:.0dGoM
J<>.308.:icz.io). (01.:.30 6).
0 i>6<>J3[Jmo - Hurdle rate - 8M8oooo.:.6Mooli
80608.:.cz.i(J!'i10 0.:.6.:.J 3o010, !'i1M8ocz.ioo li01fo!'i1M.:i
li.:.063oli8ooo(Y) .3MM::Jd8oli
'B(Jcz.>.:>Q?o 6.:.J<>Q?QOol.i (QOUJM68ofi1oooli .:.6.:icz.io 'bo01;
 0 060J30010, Mf'l8c::.'oli 8oboCQ30010G, .3"1f'lod0o 0 .:.'bt"iu;ol.I 0 0<'10CJ3. 80 0 0c::.10010(Q: f'lOC!::.'oo<>GooooG Jf'l5-
8oli0e:?o60CQ. (01030 13). 30M0o<Yiooob;:,b "JG°"'bo u;<> 0.Cl. (cn030 18 u;<> 22).
6300 - Beta - lioli80808(JMO t'loliJoli Jf'l0'13oGoo50o; - Prepackaged bankruptcy
'bf'l803li 0dG006oli (e:?ot'io6(Jc::.'OOoli) (prepack) - <'1of'l<'1 0 06o'b0(30<>, Mf'llQ[lUC>(3 Jf'l8.30600G
80"1d5f'l00c::.'f'l60li li000 'bfif'l .3f'lM0'130c::.'oli e:?OM06(J- JM[lCQ00f'lMQooli 088-
c::.106oli .3f'lM0'130c::.'oli ,,6080" JOGOOG 006JMM8oli .3MM(30tQ(JMOoob (Q00l:I000li.
Jf'l0'13oGoo50o 008f'lo013c::.1000 o5CQ030CQ(J- (cn030 23).
0c::.1()Mo 0dGooli 0000Li Cloof'l5oc::.1001 <>dooooo - Treasury stock -
.3f'lM0'130c::.'Oo. (m030 5). !53o(Jc::.'OOM030 <>dGoooo, MM8c::.'::J00(3 od50 3.::.8Mb-
- Business risk - 0 <>6(Jli<> 'be:?3MOC!::.1f'l00 l:IO(Q(Jc::.'O (Q0 o50boo<> JM8.30600-08oeo6eoli <(30606b(JM
( 0 0(JMJ303c::.'f'l60), Jf'l8.306ooli C(30'boJ(JMO li0d800- (cn,:,30 18 (Q0 20).
6f'l6oli0li. 8olio 'bo8f'ld80CQOO<> 0oli0bo60 Jf'l8.306ooli - Call price - '13<>bo, Mf'l8c::.1001<>G
f'l.30"1<>8o(Jc::.'o/808CQ060"10 008f'lli<>3c::.1060Li G3"c::.'oo0- d0e:?<>c::.1u:o Cloodc::.'oo<> 0 08f'lbtJotQ(Jc::.'o nt1f'lb
(Qf'l60Clo, 8(Y) 0 000Clo 3<>CQ<>l.10b0CQ0608CQO CQ<> G0"1 0 06c::.10G 3<>(Q0BCQOC!::.'o 0 08f'llitjoCQ3ob .30<'1f'loo01 o8oeo60ol.I 8ooM
o<>CQ<>b(Q<>8CQo (EBIT). (01030 16).
<(3<>bo060 bo85o<(3QBCQO· (01030 20).
oo'b6::ibo-oo'b6::iG0Gm30L - Business-to-business (B2B)
- Jf'l8()50J0G0000 (Q0 0M<>6'b<>dGoooo 306bf'lM(30-
008P1liuocimob 6::if.'lo(Y)cr;:o - Payback period (PBP) - tQMf'Job
.3oMOMtQO, b0iJ:oMf'l0 b0063obeo(30f'l oo'b6oG
Jf'l8.306006li, 05 Jf'l8.30600G.::. (Q<> li06f'lc::.'f'lf'l
.3Mf'l0Q00o o53olieo<Yioo(Jc::.'O m06boooli e(Y)c::.10 '13()-
Of'lMOU. .'.>c::.1<(3<>6(J80"10J(Jc::.1 '13f'lM8oli
c::.'<>tQO 008Mli<>3c::.1oli 8ob<>c::>oO<>(Q. (m030 13).
B2B <>e:?60Cl360, o0 o <>e:?500603G o60o"16o0om
- Call premium - <(3<>lio060
8"106'b0dG006G. (m030 10)
d0e:?<>c::.1CQOOOU 6M8060c::.1(JM tQ0
oo'b6obo·co'b50Gribm3ob o'°'G3C::" - B2B exchange -
30u;081Qoc::.'o <lodo6oli 05 (JJ<>6 0 08f'llit101!!3<>li ClMP1oli
60'b0"10 06806)60800, o6eoM6o0om 30IJ:Mf'lo0,
608080 e:?OMOO(Jc::.1000. (cn030 20, CQ<>50M010).
Mf'l8c::.1001<>G bf'lMGOOC!::.1CQ06<> "1o<>c::.1(JM (QMf'lOo <>()d-
(30f'l6ob 8b 0 03G<>CQ C(3<>boG 0001.::.30'booocn. (cn030 10). \QC::D - Payment date - U:e:?O> MM(30 Jf'lM.3f'lM.::.-
- Bill of lading - (30<> '13<>deo(JP1<>u; obu;oli 008(Y)Gb<>CQOO(Jc::.1 CQ0301!!06-
0 0-
(Qf'lJ(J80680, Mf'l80c::.'OG 000G03Li 06'13f'lM- CQOoli. (m030 18).
8<>(300U 830"1cnob CQ<> o<>CQ<>'boCQ30G rn"''""""'n - Dividend-
Clob0boo, 0b:130 o5<(3f'lM8<>Go<>b 80mo tQ030(Q05tQ000 o<>t1-
a'l3c::.'f'l6oc::.'oG CJ 0Li0b 0o. (010 30 24). oc::.'O(JM aM 00 00'bo; 05 0c::.'eo<Yi60eo(Jc::.'"CQ,
6v6066lo30 - Natural hedge - u;o301Q061Qooo 0P101 <>J(30<> 'bo o<>tJf'l'l3oc::.'o ot'lm <>dGoob
(MoUJOU Clo8GOM::JOOU d80CQ::JO<>) Mf'l8::Jc::.1U0(3 0(Qo0c::.'0 8f'l 0000'bo. oli JMOC(30Goo50o 80()0100100G oP1cn <>dGo-
0d3G 0()600<'103<>CQ, '13o<'18ob 5f'l<Yi8<>c::.1()Mo f'l.3ot"io<Yiooob 0'bo 8(Y)c.oooG MC> OOC!::.10 odfo o<'>GQB()c::.10 (Q03ou;o61!/0G
CloC!?Oo"C!?· 80 0 0c::.'om.::.CQ 008f'll.1030c::.'o Boe:?oo()c::.'o li0bo01. (01030 2 u;<> 18).
()Gbf'l()Mo 3"c::.1()0ocn CQ<> 08030 3"c::.1()0001 0Mb::Jo()c::.'o G0Jf'131Q0l'!i'1 - Revolving credit
3"c::.'CQ::J0(Jc::.'Oo<> 0u; 0 05Li o(J5oo<'1o 3 agreement - 306('1600<'10
(cn030 24). JMOCQO@_io (QMM'bo 808 b,:,6G.
(0103011 (Q<>21).
- Deffered taxes - 3"c::.'U:O- ;:i,01J1:Jf'lfflfionc:i;iaol\ 'BJB!Q0 ffl8o - Post-completion
o(Jc::.'Oo0, 00P18f'l<>tQo06b 0J(JB()c::.10MOO(Jc::.1 audit - .3P1Modeoli M:J<>c::.1(.)MO (Q<> 8(Y)c.o-
0 06bb303000b, CQOJC!::.1<>P1o<Yioo(Jc::.1 3<>1Q<>G0b0u;G0 u;<> ooli d:J(Q<>P1000 u;0 0 o0 8oc::.'cn05. 0Gomo
'13"Deo(J<'1 0 0u;0bCQooG of'lt"iob. oll 0 06Gb303000 <>()l!!oeoG doP1001<>1Qo (Q<>5oCl5(Jc::.10000 (JJ(JJ<>3<loP1ob
bCJ0<'10u; l56CQ000, Mf'l(30 b1Qo60 8f'l 0 o6oli bb30u;0bb- o5'13(Y)M8<>(30<>: 05() <>(JCQo0oG O:JU:OoOoo 0 0u;<>Q(3::J8<>
30030<'10u; 0 08f'lcn3c::.1<> '13ofo6b(Jt"io 06 0 0<'100 0 000G0 CQ0 CJ 0Li00080G .3oP1Llf'J60c::.'b, 8(Y)8030c::.'o a"l!!0ot130®0-
b0 0 0(Q0G0b0u;f'l 06 0 0<'100 0 000G0cn3ob. (cn030 6, c::.'OooG 8oc::>oooG (01030 13).
u;060t"icno). ;;vrr·1vo1ti\Ov - Security (collateral) - .::.d&o3060
c>':>Q?0bcf?,) Q?Mo930rioo - Payable through draft (PTO) - 15oJob GoGboG 8ooP1 Bolio CQ<>OM(J6oooG (J'b<'1()5-
8G 0 03bo 0 <>CQ<>bu;ob o6b0"1()8::J50ob 0 08MtJD6000, 30c::.'G<>tJf'l'l3"CQ· m(J lioliboli 30P1 u;006-
c.08f'looo<Yio60 li,:,bc::.''bo u;<> <'1(J600G G0GbLi, <lo(Jdc::.'o<> 0 08ou;(Y)G 0t.i
.'.>M0 0063ob b0boc::.''bo. Mf'l(30 <>e:?5oCl6(Jc::.10 U00()010 (J'bM(J53oc::.'l:lf'lC(30U <>d803000 GoGboooG u;<>b0<(30M0-
00MoC!?c.05 000 005Jb, oe:?oob o<>CQ<>o- 3"1Q· (cn030 11 ).
0e:?o<><'1f'lb 01() ooot1 3oef'lb B"IQ"bC!?"· ()CiM::J 612b·06bofii260 - Outsourcing - 'bf'l 0 00<'1010 6o'b60G-
(cn030 9). f'l.3::JM<>(300G J30J(Y)5e<'10d8(Y)<YioG 800<'1,
- Dilution - <>dGof'l5o<Yio6ob ooc::.'ob Clo8GoP1000, o8oli Mf'l8 oli G0d8006f'lo<>
<>08030600 IQ<>B<>&ooomo <>dGoooob m030u;. (cn030 9 (Q0 23).
0 08f'lCJ30 oob CloC!?Oo"G!' <>dGoooob <'10f'l-
IQ05f'loob 2>0'bt"iu;0 0d803ooob 06 8f'l 03oob Clob06080Go

747
 <'>_'}Gi>83ou 8"()6.'>00c:?.>OOOc:?.>O 8CYJ8000U 03!:!:?.'0c:?.>OO<'>U
U.'><'>68.'>MOOCYJ .33t'loCYJ!3?00 - ou .'>MOU Clo!l?080 8M8000!3?<'>6
(.:,6 'bi>M<'>c:?.>0!3?<'>6) !!?" 8"!3?"b!l?Oc:?.>O !3?030l3?06!3?oool3?<'>6.
3u ;,68i>MoClo bCloMi>!l? JM80060M30()!:!:?.'°"
Cl38Mu;,3c:?.>ooou <'>68i>Moam.'>6. (m<'>30 6).
o()ll?30c:?.>O - Goodwill - u;,j8o.'>6o M3.3()8"0o", JM8.3.'>6oou
<'>M<'>8<'>80MO<'>c:?.>()MO .:,j803300, 8CYJ.3CYJ330()!:!:?.'0 U<'>j8o-
.'>6Moou Clo!l?08"!3?• MCYJ(3<'> JM8.3.'>6o<'> ob!l?ou 8ou U<'>O<'>c:?.>-
<'>6uCYJ <'>d&o 30 o'bo 8o&u. 8 ()!3? 3oc:?.>o ()6!3?" a 08CYJo8!l?ou
00c:?.>00<'>!3?00 OMmboc:?.> 8M6(3, 8ou 8<'>8.'>Mffi(Jc:?.>OO<'>'bo (.:,6
(J<'>Ml:JM<[J"'bo). (m<'>30 23).
8<'>1:JO!l?3" OJi;i>Mom <'>c:moou .3o6iCYJoom - Sale and leaseback -
8<'>1:J0!!;!3<'> Clom.'>6b83oom, 8.'>00630 080 b3c:?.><'>bc:?.><'>
i>M06!3?om ll;!MCYJou 8M(308()!:!:?.' .3oMoM!l?Clo. (m<'>30 21 ).
&"03!:!:?.'"C!?o CYJOc:?.>08"0°" - Exchangeable bond - CYJOc:?.>08<'>-
(30<'>, MCYJ8oc:?.>oo 8<(3c:?.>MOOc:?.>u Cl3()dc:?.'°" 8"03"!:!:?.'CYJu
ub3<'> JCYJ8.3;,6oou R33()c:?.>Oot'lo3 "DO°"'b3, MCYJ8CYJM(3
03uo, 08 <'>J(30<'>'b3, MCYJ8c:?.>ou <(3!:!:?.'Moou 0683M3uoo ;,j3u
8M(308()!:!:?.'0 CYJ0!:!:?.'08<'>(3oou 080836&u. (m;,30 22).
8"G3!:!:?.'omo J(JMUo - Exchance rate - 3Mmo 3"!:!:?.'()8ou
ot'lmo()c:?.>ou M<'>M!l?06CYJo<'>, MCYJ8oc:?.>oo Cloodc:?.>oo" 01:10!3?CYJ
ub3;, 3"c:?.>()8ou 3Mmo OMmO(J!:!:?.'om (m;,30 24).
8<'>if:o<'>6(JMOO()c:?.>O JMOC!?08(Y)M()c:?.>o 3"!:!:?.'!l?OO(Jc:?.>OOOOo -
Stretching accounts payable - 8"!3?"bl3?ou 8"!3?"3"ll?DO<'>
8"!3?"u"b!:!?Oc:?.>O 3"!:!:?.'!3?00()!:!:?.'0oou 8080M!!;!OOc:?.>Ooou-
m3ou; ;,u330 (JOM!l?Ooo6 806!:!?06Go<'>u 3<'>tfMCYJO<'>'bo.
(m<'>30 11 ).
8<'>bc:;:iolb - Spin-off - .:,j803ooou 6<'>00!:!:?.'ou 8"!3?"G08;,.
Q?o33u&o8()Mou <(3MM8;,, MCYJ8c:?.>ou Clo!l?08"!3?"G
Cl3oc:?.>CYJOoc:?.>o JM8.3;,6o;, .'>6 JM8.3<'>6oou MCYJ8oc:?.>083
8"61:JMC(30c:?.>OO<'> b!l?OO<'> Q?i>8M()JOQ?OOOC!:?.'o JM8.3;,6o.'>.
R3o()c:?.>OOM03 ..,b..,C!:?.'o JM8.3..,6oou "DGoooo Ol:JM<B" !3?01:1?"
JM8.3..,6oou "DGoCYJ60Moou ClCYJMou .3MCYJ.3CYJMGoou
U<'>C(3()d3oc:?:'bo. (m<'>30 23).
* !3?<'>0083MoUi>8<'>6 Q?<'>(3()!:!:?.'0 - Tax shield - JM8.3.'>6oou
8i>8Mj3om3<'>!3?0 b<'>M.'JGOOo, ouo6o 3j338!3?00<'>M000<'>6
8<'>8Mj3om3<'>U U<'>8<'>!3?<'>U.'>b.'>!3?CYJ Clo8CYJU<'>3c:?.>OQ?<'>6. ou
b;,t'li;ooo "oo;,3u" 8<'>mo Cl38CYJu<'>3c:?.>ou DJ303"!:!:?.'D68
m.'>6b<'>u Q?i>0083MOU<'>8i>6. (m<'>30 15, !3?<'>6.'>t'lmo o Q?<'>
m;,30 17).
!3?"8MM330<'>1320 1Qo301Q361Q3oou .3o(r)Mo" - Cumulative divi-
dends feature - 8CYJcnbCYJ36<'>, MCYJ8oc:?.>oG m;,6.'>b8;,IQ
1:130!:!:?.'" IQ<'>8MM300<'>!QO 8<'>!3?<'>(Jb!QOC!:?.'o !3?0301Q361Qooo
.3Mo3oc:?.>080MOO(Jc:?.> <'>J(30i> 'bo (J61Q.'> 8"!3?"°b"!3?CYJU
R33()c:?.>OOM03 <'>doooo'bo 1Q0301Q061Q3oou 8<'>1Qi>b!Qi>8!3?0·
(m<'>30 20).
!3?"o(r)M3:JO"lJ?o b8ou 8oon80 - Cumulative voting - JMM.3CYJ-
M<'>Goou !QOMOJ8MMm<'> i>Mfl33ou 83mCYJ1Qo, MCYJ8-
C!:?.'ou 8obol3?30ffii>(3 O)OO)CYJO(JC!:?.'O f\33()c:?.>OOM030 "JGO<'>
<Bc:?.>Mou b8ou 80038ou 081Q36 M<'>M!l?06CYJo;,u, Mi>8Q?360
1QOMOJ8MM0(3 .'>Mou i>Ui>Mf\030 IQ<'> momMO(JC!:?.' <'>J(300U
8<(3!:!:?.'CYJOOc:?.>U Clo()dc:?.'°" !3?""8MCYJ3CYJU ou b8ooo !3?"
8<'>8CYJ01:106CYJu 080 63oou803Mo u<'>bom ot'\010 "6 M<'>81Qo6083
JM6JM:J8()c:?.>O !QOMOJ8MMOU i>Ui>Mfl:J3"C!?· (01.:,30 20).
748
on8o - Adjusted beta - "DGoou 8M8<'>3"!:!:?.'o
oo&" JMOC(30(3006&ou OO'tJ"UQOi>, MCYJ80c:?.>OG .'>MOU
C(j<'>U0.'>60 ou&CYJMO(JC!:?.'0 (8o'bCYJ80c:?.>o) oo&i>u
8M!QOC(3oJ"Go" !3?"0300001, 03&;,u !l?MCYJm;, 8"6-
8"3!:!:?.'Mo;,Clo <'>j3u 806!3?0600<'> 8o(J<'>bc:?.>M3!3?0U oo'lJMou
<'>6 JM8.3.'>6oou o;,M8CYJ3oou !Q<'>M8ou U<'>O(Jl>c:?.>CYJ oo&ou.
(m;,30 5)
Q:?<'>o680Mouno()C!'o 8b"MOD6o - Stakeholders - 1:1 3oc:?:"•
3060 <QM680M:JU06(JC!'°" JM8.3.'>6oou oo'b6ouom. 8.:,01
Moob3u 803J(Jm3636006 8ouo "DGoM6:JMDoo, JM01Qo-
8MM000, Jc:?.>Oo68o6o, 8CYJU.'>8U.'>b(JMOOOO, 8o80CYJ<QO-
Oc:?.>OOO <:!?" "!3?80c:?.>CYJOM030 U<'> 'bM81><QM:JO<'>. (m.'>30 1).
!3?"8"8D6001 &"a?"bCQoc:?.'o J<'>.3081>!:!:?.'o - Additional paid-in
capital - JM8.3..,6oooou 803M R3o()c:?.>OOM030 "DGoooou
8"1:Jol3?3om u;,buM300, MCYJ8oc:?.>oG <'>tf<'>Mo3ou
ojooooou 6CYJ806;,C!:?.'(JM "6 ;,uo860M30()!:!:?.'
O(Jc:?.>OO<'>U. (m<'>30 20).
C!?"8"8Doom .3Mo3oc:?.>080M:JO(JC!'O 8<'>8MDOMI> - Oversub-
scription privilege - ()<(3!:!:?.'00" Cl3odo6CYJu (.3MCYJ.3CYJM-
(30(JC!:?.' u"<B(Jd3ac:?.>'bn) 63oou8onMo "t'l"M:J<'>c:?.>o'b30()!:!:?.'0
"DG°"· U.'>O(Ji>c:?.>:JO.'>U .'>dc:?.>:J3U "JGOCYJ63Moou,
8<'>8MOl:J06CYJ6 m.'>3ouo ()<(3!:!:?.':JOI> i>boc:?.>O 8i>8CYJ03QO(Jc:?.>O
"DGoooou Clod36ou b:JC!'Ui>l:JM:Jc:?.> C(ji>UoCQ, MCYJ8c:?.>nooo
i>M <'>Mou Clndn6oc:?.>o ub3;, "DOoM6:JM:JOou 8o:JM. (mo30
19).
Q?1>8<'><§:JO(Jc:?.>O :JJM6CYJ8o(JMO - Economic
value added (EVA) - oo'b63uou 8<'>63001;,MOoou,
. OJM6CYJ8o(JMO D<BOd8o<'>6CYJoou, uo'bCYJ8o. OJM6CYJ8oJ(JMO
8CYJ8ooou <§0.30, tl'iCYJ8oc:?.>oo 8Mc:?.>o" JM8.3;,6oou
8<'>!3?<'>Uob.'>!QOU 8"!3?"b!QOU O:J8!Q08 o8o6CQ.'> CYJ.3t)Mi>(30()!:!:?.'
8CYJ800<'>U 8<'>0MJc:?.>OO(Jc:?.>O Ji>.308<'>!:!:?.'ou
(b<'>M.'}GO 8"8· Ui>M8:JOc:?.>ou 8"6"J30010). (m<'>30 15).
!Qi>8CYJJO!Q00()!:!:?.'0 (<'>6 JM68o8:J68(JMO) .3MM:JJ80 -
Dependent (or contingent) project - u.'>063nu0000CYJ
.3MCYJOd8o, MCYJ8c:?.>ou Q?o8MJO!Q:JO(Jc:?.>Oo 3Mmo
06 M<'>81Q36080 ub3;, .3MCYJOd&ou (mo30 13).
CQ<>OM(JJOCQOOOc:?.>O .3MM:Jdc!!Jo - Independent project - .3MCYJO-
d&o, (.:,6 (Jl>Ml:JM'tJOc:?.>O), MM8:Jc:?.>OG i>M
"ba?o6u 'b 08 .., 3c:?.>o6"u ub 3.., .3MM:Jd&oo'bn. (01.., 30 13).
CQl>(r)oob(Jc:?.>O bot'1Ji;300 - Accrued expenses - 8"CQ<'>U<'>b-
!3?D!:!:?.'Doo, tl'iM8c:?.>ooo 0 Clo"a?8 o6o6 JM8.3..,6oou 3"!:!:?.'cr/D-
o()!:!:?.'Oooou, MCYJ<QOU<'>(3 .'>M .'>MOU 8"CQ"b<QOc:?.>O
ub 3"!3?"ub 3.., l3?" 3"!:!:?.'o"6ooooo: boc:?.><B"uooo, 8 "l3?"uob-
"!l?Ooo, !3?030CQ:J6CQooo !:!?" .'>.Cl. C!?"8MM30c:?.>O boM_'}G:JOO
<'>Mou 8MJc:?.>03"!3?°"6o 3"!:!:?.'C!?:JO()c:?.>OOOOo. (m;,30 11 ).
a?"'?J"M3ou JMOC(30(30068o - Coverage ratios - JMOC(30G0-
06&0, MCYJ8c:?.>oooo i>Jo3Clot'l3ou JM8.3.'>6oou 'Bo6;,6u(Jtl'i
3"!:!:?.'a?OO(Jc:?.>OO:JOU, 8ou OQU<'>dc:?.>o6c:?.>CYJ0.'>Umi>6, 8CYJo8-
uob(JMCYJU _.,5 a?"<B"MCYJU 8MJc:?.>D3"!3?o<'>6o 3"!:!:?.'a?OO()c:?.>O-
oooo. (01.:,30 6 !:!?" 16 ).
C!?"D3DO!QOO"t'lo6(Jc:?.>O a?o6o58()Mo - Subordinated debenture
- 8Md:Jc:?.>3"!3?o"5o <'>M<'>(J'bM(J53oc:?.>HM<Bo!:!:?.'o uo3oc:?.>CYJ
o5u8M(J8o58ooo, MCYJ8C!'oooo b;,uoom1Q30006 800M3
Clo8CYJu<'>3c:?.>006CYJoom, 301QMO ub3" Jc:?.>"uooou 3"!:!:?.'o; o5CYJ-
oo!:!:?.'o" MCYJ8MMG ,,8(30M3 3"!:!:?.'Doo". (m<'>30 20).
!Q.::ifij0<'106()!!::,'0 - Accelerated depreciation -
.)8MM@.>o'h.)oooli 8[JO">MCQO, MM8!!::,loli
CQMMli.)G bCQ::JO.) J.).300.)!!::.'(JMO .)j@.>03;:iooli
!!::,l;:JOOU uoM.)<(Jo fl.)80100/Y),) b.)M_SG;:JOOo, 30CQM::J DM<(Jo30
.)801M@.>o'h.)ooou !QMMli. (m.::i30 2).
- Debenture - .)M.)(J'hM(J630!!::.1tJM<(JO!!::,lo 3.::i!!::,1-
CQ:JO(J!!::,l::JO.), 51i1d:J!!::,13.)i:Qo.)6o .)M.)(J'bM(J63[J!!::,ltJM'(30!!::,'o
U.)30!!::,lM 06u@.>M(J80600. (m.)30 20).
!Q::J00801trl(J!!::,'O 1.Q.)30!!::,1006000 - Accounts receivable -
'?l()!!::.'.)CQo u0buli1aoo, (Y)rri8!!::.'aooo Jrri8.3.)6008 (J6CQ0
J!!::.'006@.>aoou0506, MM8!!::.'ao8.)(3 8ou 0 .)6 JM:J-
CQo@Jom Cl;:iodo6au .3(Y)MCQ(Jj(3o.) .)6 8M8u0b(JM:JO.). !Q:JO-
o@.>MM(J!!::,10 CQ03.)!!::,'o.)6[JO.) 00ti18M.)CQo:J6U 8o8CQo6.)MQ
.)d003u. (m030 10).
CQ::JJ!!::,10Mof.iaoou - Declaration date - MMCQ:JU0(3
CQOM:Jj@.>MMO"l.) l.i.)o:fM, 0ob0CQ:JOU fl3:J(J!!::,l:JOM030 CQ030-
CQ:J6CQ:JOou UOCQOCQ:JU !:Q.) 80mo 50CQ0bCQoU
(m.)30 18).
O?a.3rri'bne(Jf.io li.)e!'\106u'?lo6101 RoJn - Depozitary transfer
check (DTC) - o.)8M(JtJ:J6aoa!!::.'o R:JJO, CQ:J.3M6oM:JO(Jc::.10
JM8.3.)6ool.i 065.)MoO'b:J oa860b3:Jc::.> 006JOO. (m030 9).
!!/D'?Jl"f!!:'.,180 - Default - <(306.)6l.i()MO JM60M0jeou .3oMM-
O:JOOU Clau(i)()c::.':Jooli O:J(Jdc::.iaoc::.iM00, 8050c::.iom.)1Q
(J(J60MM00 0.)!QMb0CQMli 30c::.inu m0360 06 l.i0(i)5;:J-
O:Jc::.10/.3MM(3:J60o (m.)30 2).
CQ03::JU0o0(JM0 - Divestiture - 0j@.>03aoou 00tioCQ3.), !!::,'OJ-
£fo(i)8rriaooli 8mc::.io060 .)6 60ooc::.irrio<Y'io3
23).
- Dividend rein-
vestment plan (DRIP) - .)MR::i3omo ona8.), MM8:J!!::,10(3
()'?lc::.'::JO.)l.i 0dc::.ia3u 0jooou 8<(3c::.iMoac::.inou
!:!?o3ol!!a6CQ:JOom 030rria00(JM.)CQ 500Jomrri6 bac::.i0b.)c::.io
o6 3ou0000000 JM8.3.)6oou u.)0j 8 001 J0.3000c::.ioli CQ.)8.)-
0ooom 0jooaooo. (m030 18).
Q?n301J;w6!.'!?(J(Y}o b<'>l:JM'?JO::JM:J6.::i - Dividend yield - CQ030CQ06-
CQ:JOOU 8MU0c::.1MCQ6;:Jc:;o oc:;o(JMO 860036oc::.irrio0, 0.)tJM-
.::ijoooool.i u.::io.::i'bMM ctpli'ho. (m030 18).
'"'"''·'"'"M' '(3()!!::,l'b1J - Cash discount - .31i1rrioa6@.>()c::.'O C(3i:>U-
CQ.)JC:::JOi:> u.::ijM6c::.iou 00tJOCQ30U 06 oal.itJOCQ30l.i C(30U'b:J,
063.::iP'loClaooli i:>CQM(J(Jc::.10 00CQ0b(!?OUO"l3ou. (JU .)MOU
u0o8(Jc::.'O JM:JCQ00om 8tJOCQ3:Jc::.'D00U.)Ol3ou 065.)Mo-
Clooo 0.::i£!?Mb.::iCQM6 (Y).::i 8 ooodc::.i;:i60 8,;c:; 0. (m.::i 3o 10).
- Discounted cash
flow (DCF) - li,;063au0ooorri .3MM1Jd0ou O::JC(3i>U::J6oli m.)
CJo(i)flo3ou 8aoK'1CQo, Mrri8c::.ioo 8obauwom C(3()c::.'oo
6.)Ji>CQ(JOO '13':'.Jc::.'Ol.i
CQMrriomo 03c::.ioc::.ioooli 0 .::im3.::ic::.iolioo6aoom. (01.)30 13).
ll(OUJM6eiob 0.::i6<'>J3nmo - Discount rate - .31i1rrioo68':'.lc::o
(l.i.::i(i) 0 ooc::.iou (JJ()o3c:;o010) 0.)foJ30010, <'1rri8oc::.ioo
0 08MOtJ(J6(JOi:> C(3(JC::00 8M8,;3.::ic:;o
.::ibc::.i.)6i:Qo!!::.' 0 .)60.) 'bc:;3(Y)ou001300
(01030 3).
- Dot-com - JM8.3.::i600, <'1018oc:;li.::io .::ij3li
di::;oofi'io o6@.>oli16oe()C::O U00(Ji>C::::JO::J60 (Qi> .)bMM-
(30::Jc::.'D00 8ouo li.)j8006Mooo dofi'iom.)CQ .)6 8mc::.io.::i6
foooc:;u 30 0- 830 6'imou ti.)a':'.l.::ic::ooom. li.::iboc:;o01!:Qao.)
8MCQOU 8olio .)0<'1030.::ie(Jfi'ioCQ.)6 (.com), M.)(3 6006.)30
JM8:JM(30(JC:: liC(3(JMMl.i, :J!!::,1-'13Mli0ou 06 300-33(JMCQOli
orric::.iMClo• .::il.> 030 (JOMCQD<>o6 £!?M01jf'l8l.i 06 CQM@.>-df'l8-t.i .
(01030 7).
t!?Mi>'13GO - Draft - boc::.i8rrioo(i)oc::.io oa<l'ioc::.iMOOOJO o<l'id.::i-
6000, <l'irriili::;o01.::io :JMmo 8b.::i(Y)::i (drawer) (JD:Jliaoli
8:Jf'lM:J 860<l'iali (drawee) u.3::ioo0c:;':'.)Mo 01.::i6boli
00CQ.)00b.::i!Qli 8oli08::i 8b0(Y)ol.im30G (payee). drawer !:!?"'
payee <'>Mo.::i6 bCloM.)CQ :JMOJo !Qi> o0 03a. (01030 11 ).
!J?MM(J00010 O<'>OM':'.)6<'>30 - Temporary working
capital - l.i.)OM(J6.::i30 J.::i.300.::ii::;o, (i)0180!!::.'0G 0030c::.iao.::i
.)':'.looc:;aooc:;o ua'h016(JMO 80101b01 360oou CQ0li.::iJa.::i801-
<Boc::.i::ioc::.i.)CQ. (01030 8).
CQMM(JC::O 8o0<'1iQ:JOOb .3tilo6oo.3o - Just in time (JIT) -
8MY1.::i5aoou 8,;(Y)013oli CQ0 Jf'l6@.>(Y)01c::.ioo 800101CQ0, <11018-
c:;oli 8obaCQ3om00 u.::ib0j016c::.i01-800o(Y)o.::ic::.i()Mo
8.)M.::i 00 oou 8o5MCQ:JO.) b!Qoo.::i (JO(J.::ic:;MCQ 6.::i(Y)801aoou
.3MM(3(JUOo 'h(JU@.li:>!:Q 08 8018a6@.la000, Mf'l!:Q:JU<'>(3 8.::i01'ba
Oi:>M80100M00 8f'l01b0136.). (01030 10).
oi:::ad0MM6(Jc:;o ()i>!QC..M0(3b3.::i - Wire transfer - <(3()"
c::.iob ::ii:::ad0(Y)016':'.lc::.io 0 .::iCQ.::iMoob3.::i 01(Y)8b(Y)o30, .3o(Y)-
CQi>.3o(Y)o J.)300Mom, 8.::i 00c::.io01.::icrt obo010, /Y)01501Mo(3
.)Moll n'(J:JCQ300M" 06 •3:J:JU@.>:JM6 O(J60M6o". (01.)30 9).
DC::Ddl§f.i016()c:;o JM8(JM(3M - Electronic commerce (EC) -
u.::ij8o.::i6o o6<(3MM8.::iooou 5.::i(33c:;0
11
()i>M:JO(J ) oi:::::id0MM6(Jc:; M(J'lJ08Clo - 8.)m OMMOl.i
o60a(Y)6aeo01. (01030 9).
oc::od0ti1M6':'.)c:;o c:;Mj6Mdliooo - Electronic lockbox - u.3a-
(30i>c::.1(JMO b.::io.::i6JM 8M8uc..b(JM::JOi:>, 5.::ib(J':'.JC::O Jf'l8-
.3.::i6ool.i 606Job OO:JM, MM(30 006JO !:Qi> .::i5<'1M3oob
C(30M8ob ac::.iad0M016(Jc:; '13()c::.'"'CQ CJ::i8f'lt.i03c:;aou !Q.)
':'.lo 'b.::i36ob 8M6.::ioo8aob/o6'13rriMB.::i 8 o.)li JM8.3.)6o.::iu
b.3aoo.::ic::.i(JM"'U?· (010 309 !:!?"' 20).
IJ8oooob - Flotation costs - !:Q06.::ibc..M'.l(;[J00,
!:Qi>J0300M:JO(Jc:;o C(3i>lio.::i6o o8olio.::i 'b[J.
8.)boo OIJcrtoli oo8crtD 0 o b0M'.l(;Doo: b006 31Jbeooof'J
006Job 8f'J8u.::ib(JM[JOi:>, O(JMOCQO(Jc::.10 8f'l8U.::ib(JM:JOi:>,
c:;obeo650 crt"' oo:f!.!?3"'· (01030 15, 18).
p,o6o(3bi:>£l!O - Tombstone advertisement -
oocl'U? 3001 liM6C(301M8.) 8 001 b.::io':'.l.::ic::.iooDooo 0.::i501.::i 3t.i 0-
6()c:;o ti1018oc::.ioo oaooo3li C(3C..Uo.::i6o
000103.)'boooo'ba b.)O.)'b01 o6C(3f'lM8.::ioo.::iu.
ob e:JM8o6o 010301.l b.::ibac::.i-
tif'l!:Q:JOob, Mi:>!Q 0.)6 8bf'lc:;01CQ li.::io.)'bM 06C(3f'Jti18.::ioo0u
odc::.ia3.::i - Mf'10f'ltYl(3 IJ.'30010.30.) (li0C(3c:;.)30G 03"' 'hi)
0"JD°'D<'>()c::.io O.)Mb[JM0). (01030 19).
:J'B:Jd®o.::i5o <tJ0606bTIMo 00'bc..fi'lo - Effective financial mar-
ket - <tj06.::i6b(JMo 00 'b.::i(Y)o, bi:>!:Qi>(3 <(3i>Uo.::i6o j.::ic:;c..c::.i-
CQ[)Ool.i 8081:!?06.)M:J '13.::ibooo UM(Jc::.>"'U? .)bob0306 tJ3Dc::.'"'
M:JC::D3"'60(JM o6C(3Mti18.::ioo.)l;. (01030 5).
D'BDd<!lJoo6o oc:;ovtiJo li0MQDoc:;oli 0 c.6"J3[Jcrio - Effective
annual interest rate - 0.::i8018(J0.)3::JO(JC::O (301:Qi:>b<Qoc::.io)
<?Pdeo(JMO bi:>M():JOc::.>ob 3.::i6.)J3:J010, Jf'l:JC(30(30[J60o-
oou 0 .::i6.::iJ3001:;oob 008-
!.l?Do• Mf'l 0 01Mo 8 .::iMob 5oc::.ioo.::i!.J?Clo ti101(Jc::.io
.3MM(3:Jb0:JOOU !:Q.)M0(3b306 M0M!:Q[J6MO.) :31JMOM!:Q:JOOb
8ob[J1:Q3001. (01.)30 3).
749
odli-13!03otQ[J6n;;ooob - Ex-dividend date - <Qo30CQ-
6CQoooli <>M 8ocwooli .30P13oc:::>o
<>doooooli 81:Jo<Q 3oc:::>li oP1018 03 ., 0 <>8Mob<><QO<'>(]c:::> <Qo 3o-
<QD6!.!?oooli (]'?.lc:::>O<'><>. (01<> 30 18).
Ddli&IT'i<> !'.!?03on;:o61Qo - Extra dividend - <>M<> P1o 0(Jc:::><>M(Jc::?O
CQ030CQ[)6CQo, o<>CQ<>bCQOc::?O <>J(30M6[)-
M[)Ool.i013ol.i, P103(Jc:::><>M(Jc::? CQ030CQ06a?oooli 0 <>MCQ<>,
0 <>6li<>J(J01M06(Jc:::>o 0 <>P1o8M 0o0ooli 0 <>8M. (01<> 30 18).
rt-.."."""'n - Ex-right date - .30P13oc:::>o
MM(3<> <>doooooli 81:Jol.!?3Dc:::>li <>d 31.i (]'?.lc:!?O<'><> Clo-
odo6Mli CQ<>8<>8[)00010 <>J(30[)00, CQOCQO bfiolJ ()o6 0 .:>8M(3-
b<>CQ[)O(Jc:!?O oo6<>CQ<>CQ[)Ool.i li<>'?.J(]d3oc:::>'bo. {01<>30 19).
[JM01[J()c:!?oli 'bt:;>3t0(Jc;,io L<>M 0[Joc;,io<>5M(,_, - Unit contribu-
tion margin - .3P1MCQ(JJ(30ol.i 0P101o(Jc:::>Oli Clo8Mli<>3<>c:::>o,
'?.J<>lili<> a?" 83 c::?"CQ ClMP1oli l.ib 3<>P1o<>,
P1M8c:::>o01<>o (J6CQ<> CQ<>O'?.J<>MP'll.i 8(]CQ8o3o
8M 0 [)0<>. (01.:>30 16 ).
uftl01.30Mf'l36()c;,>O 8<(3c;,>MO[Jc;,>M6<> - Sole proprietorship -
oo'b6olioli P1M 0 <>6o'boooli '?.JP1M8<>, MP18oc:::>li<>(3 '?.Jc::?Mol.i
0P1010 Ji>(30 !.!?" <>8.:>li01<>6<>30 <>d3li
oli83ooc:::>MO<> 01<>301.io '?.JoP18ol.i l:J30c:!?" 3<>c:::>CQO-
o(Jc:!?OOOo'bo, li<>d<>P1013oc:::>MClo <>lio010 li<>boli oo'b6olioli
MM 0 <>6o'b 0ooli '?.Jf'1M8<>li .3d 3o<> o6CQo 3oCQ(J<>c:::>(JP1o 80-
o<>P18o. (01<> 30 2).
- Euro - 03P1M.3oli 0P1010<>60 3<>c:::>(]8oli CQ<>li<>boc:::>o<'><>.
M'?.Jooo<>c:::>(JMO <>oP1 03 o<>8(JM<> EUR. P1M 0 P1P1o CQM-
c:::><>Mo ($) CQ<> ot'lo8<>6(]c::?O '?.J(.)680 (£), 03MP11.i <>d3li 0 <>6-
8.:>l.ib3<>3oooc:::>o lio8oP1c::?P1, P1P18oc:::>oo .3 0.,31.i <>liM ,,C"-1.i,
CQ<> 0<><Q<>J3[)010c::?O<> 8Mc::?MOol.i 6006001 €. (01<>30 24).
,..,,fi,mcnmrm.,1n<11m - Eurodollars - CQ[)dM'bo8ooo, CQ[)dP1-
60P1oo(Jc:!?O <>Clo CQP1c:::><>P1oooo - P1M 0 MP1 8 001.io, <'><>6JClo
o00 P101o<'>(Jc:::>O Cl8<>8o<'>oli '?.J<>Moc:::>ooli 0 <>P1o01, P1M8c:::>o-
o'b08 <>P1 3P1(30c:!?<QO<'><> <>oo-oli li<>o<>6JP1 M.3oP1<>oooooli
oolio. (01<>30 9 !.!?" 24).
- Eurobond - 6oooli8ooP1o Moc:::>o00000,
MM80c::?0(3 Ol:JOCQ000 08 d30l:J6oli 00P1001, MP18c:::>oli
3<>c:::>(]80Clo 8 o0o 060boo<> (80 0 0c:::>o01<>CQ, 03 P1P1CQP1c:::><>P1oli
Moc:::>o00000, 03t'lP1006oli Moc:::>o0000<>). (01<>30 24).
03P1M30c;,i()0<> - Eurocurrency - 30c:::>(]80, MP18oc:::>oo
CQOdM6oP1oo(Jc:!?O<> 801.io 00P18MOP100l.i J301:J6oli '?.J0M-
oc:::>o<'>li 00P1 001. (010 30 24).
3<>CQ<>8CQ[Jc;,>o 0 08MlitJO!:f?3oli .3oMMoooo - Call provision -
0801.iooli Clo01<>6b8oooli .30P1Mo0, P1M8oc:::>oo 60001.i
P101<>3li JM8.3.:>600-0808a68li 0 08Molil:JoCQMl.i '?30lio060
'?.lodlioP106(Jc:::> '?301.ioo (06 '?.lodliot'loo(]c:!?
lioP1o(Jc:::> '?.J<>lioooo) lio800'?308CQO· {01030 20).
"""''""'"' li[Jbbo - Term loan - 30c:::>o, P1M8c:::>oli 0 0CQ<>bCQ0
ool:loo<> 0P1010 Oc:::>oli oo8<QOo• 800P108 doP10010CQ0<Q - 10
ooc:::>'bo 6<>Jc:::>o<'> CQMMClo. (01030 21 ).
30c;,ioG CQMDO - Debt ratios - JP10'?.J0(3oo68D<'>o, MP18oc:::>oo
0li0b03[J6 JM8.3<>6ooli 3<>c:::>o<'>oli CQ<>'?.Jo606lioooli
b0P1olibli. (01030 6).
30P1060o - Warrant - 0dooooo01 3<>ffMMooli 0 P1doc:::>-
3<><Qo060 <'1'?.J(300, li.3ooo'?30J(JM0CQ l.!?"<Qoo6oc:::> '?301.ioo
750
<Q<> CQMMol.i JP16JM08(]c::? .3oP1oP1CQOo. (01030 22).
MM(3<> 30Mo.:>(3noG JMQ'(lnGooEion - Coefiecient of variation (CV)-
li806CQ0M8(Jc::?O 0 0CQ<>bP1ol.i JP10'?.J0(30068o, P10080
lioCQOCQOl.i 0 0CQ1>bP10 Bolio l.i00(J0c:!?P1 1>Mo018080J(Jc::?O
86oo 36oc:::>M<'>oCQ"6. 01.i <>P1oli P10LiJ01"6 CQ"J" 3ooP1o<'>(Jc:::>O
81>R306o<'>oc:::>o. (011> 30 5 !.!?" 14).
306flo6i(Jc;,io 3006imo0602><) - Joint venture - li1>00P18M,
P1M8oc:::>oo OJ(J0136oli Cf?" 0P101Moc:::>o30CQ 080P101000
P1MO 06 8080 CQ1>8M(JJO<QOOOc::?O JP18.31>6ooli 8ooP1.
01001<'10(.Jc:!?O .3<>P1&6oP1MO 03P1doc:::>o<'>li 0P1liooP10<>li,
MP1 0 P1P1 8 <Ql>BP1(JJOU?o<'>oc:::>o JP18.3060<>, "a?oOc::?P1oP1o 3o
li<>o0P18P1 01>P18P11><Q306Li 011>3oli011>30CQ <>b1>c:::> li<>o<>P1-
8Ml.i. {011>30 23).
JMMd('JM0(300 - Virtual corporation - oo'b-
6olioli P1M 0 1>6o'boooli 8P1CQ0c::?o, P1M8oc:::>oo 8<'1001>31.i
oo'b6olioli '?3(]6dooP160P1oooli '?.Jl>M01P1 81>lio&1>00<>6
CQ<>
Ol:J<>MMOoli. (011>30 23).
,, 'b300 ::i6::i6oli" li0'i3P1mbMO[Jc;,>•:. - Shark repellent - JM8-
.3<>6ooli 8ooP1 3<>8M1:J06oo(Jc:!?O 011>3CQ1>(330010 li1>Cl(J1>-
.3.:>li(Jb- c:::>OO<>, dP1806(30(JMO "JGOOOOl.i li<>JM68MMc::?M
.3<>Jo8oli 8ttoU?30c:::>O<'>oli 8M01bM36oli Cloot1308oli013oli,
"'b303060" 8ttOCQ30c::?OOOl.i 8081>M01(Jc::?O·
(011>30 23).
011>36oli 0b0936lmbfYl:J00 - Safety of principal - ca1>lio<>6
063oli&oP1oo(Jc:!?O doM001i>CQO 01.:>6boli
ooli<>dc:::>o<'>c:::>M<'><>. (01<> 30 9).
- White knight - 803MOM(Jc::?O 8ttol.!?3Dc:::>o,
MP18oc:::>oG JP18.31>6ooli 8Mo303001 iJOCQ(]c:!?P10U "J(30[)0li
JP16J(JM068 JP18.31>60000CQ1>6 <>6 <>Jo01ooli 800P10M(Jc:::>
JP168P1-Clo01<> 3<> 'booooli, P1P18 li"ottolio
1>M1>800P10M(Jc::?O "JG000001 3<>ffMP101>. (01030 23).
o5CQ::J500M<> - Indenture - li<>3<>c:::>M 3<>c:::>CQOO(Jc::?Oooooli JM6-
8P11>d&o, O(JMOCQO(Jc::?o 00011>6b8001>, (JOP1CQO<'>o6 <>lio30
li<>6CQP1P100U CQP1J(J8o68li (deed of trust), JP1M.3MM<>(3000li,
3.:iaP1o30 o(]c:::> Moc:::>o 0" 8 o0oti CQ0 .,a Moc:::>o 3., 8 o0ooli
8'?.Jc::?P100c::?OOU OMMOUj <>8 Clo011>6b8001>00 31>6oli1> 'b-
P10c::?Ool>(300l.i 31>8P1Cl3oooli dOMP10[)00 Cf?"
8001001o<'>()c:::>o1> .3ot'lo. {01<>30 20).
o6i!?:Jdb(Jl'ilo - Index analysis - .3MM(3068(]c::?O
CQ1>8P1JO<QOO(Jc:!?Oooli <>foc:::>o'bo '?.lo6.:>61.i(JP1 1>6 0 1>P10Cl-
OD01>00, MP1Cf?Oli"G <'><>c:::><>6lioli 06 Clo8Mli1>3c:::>o<'>oli
<>63<>P10Cl3oooli 81>R306o<'>oc:::>o li1>0<> 'boliM Oc:::>oli 1>P1oli
100% CQ<> o3 o30 '?3061>6li(JP10 <>6 3 <>P1oo 00 ooli 80R-
306o<'>c:::>o<'>o 3 08Mli1>b(Jc:::>o<> .3P1P1oo68(Jc:::>"l.!? li001> 'bP1
ooc:::>oli <>60<>P1003001>li01<>6 8081>P10100<>00. (01<>30 6).
o6!:QO<(J0<'1o5li(Jc;,io Bfil(Ji:QO - Indifference curve - 8P1(JCQO,
6lP18oc:::>oo <>li1>b<> 3li JP180061>ooooli
6oc:::>o (JJ()OD<'>oli1> CQ<> P1oliJoli, P1M8c:::>o<'>oo o6 30 u-
8MP1ol.i013oli oP1016<>oMl>CQ (01<>30 15).
606'looc:::;o 061Qo'?Joftlo6b(Jc;,io
6o610oc:::;o)- Indifference point (EIT-EPS indifference
point) - li"!.>!"G Clo8Mli<>3c;,ioli CQM6o 0"CQ"li"b"CQ0<'>"8CQO
li1>P13ooc:::>1>8CQ0, (J'bM(J63oc:::>t1M'?.JU Clo8Ml.i03<>c:::>oli OM01
"J(30I>'bo EPS oP101fooP1 CQP16oli P1Mo <>6 6l<>8CQ06080
 b@)M(JJ@)()<Ylobm3ob. 6.:iJ.:i\:Qoom.:i6 808.:if\lmoo.:iClo. (m.:i30 17).
(m.:i30 16). beiP1J<:ooo - Capitalized expenditures -
o61§[Jt'1obnoob - Pooling of inter- b.:it'130 oo,
ests - 060.:i<Ylooooob 8o01M!J<O JM8- obo6o OOMCQ:J0006 filM-
.3.:i6oooob 0.:io<Ylmo.:i6ooob.:ib, iJ<MML.:iG biJ<oo.:i ()Mfil(.3 tQ" .:ifil.:i 8o8CQo6.:ifilo
MMO JM8.3.:i6oob aoo<Ylmoo.:i. .3o<i1nMCQol (m.:i 3o 1
23). 0denm:iooL - Capital-
- Interpolation - MM 6.:i(36Mo (30f8ML asset pricing model (CAMP) -
OMMob 8!.J:<oo.:i<Ylo (J(36Moo Mo(3b3ob "c:?tiofilb J<>3oofilb filobJb<> Cl?" (8Mm-
ao'B.:iboo.:i. (m.:i 3o 4 iJ<i> 13). oMt11ob, .:i8 <(3<>bo.:i6o
- Inflation - !J<i> 8M8b.:ib(JMOo.:i'bo b.:ifi\00-
<(ji>bob CQM6ob 'bMCQob .3MM(30bo (m.:i30 2). (JMObJM 0.:i6.:iJ 3omL .3M 0-
o.:i5JoMo - Mortgage banker - f806.:i6b(JMO 8o.:i, f8<>bo.:>6o bob@Jo8<>8(JM
06L@)o@)()80, MobJm<>6 8o8.:it'1moo<>oo. (m<>30 5).
60301oob - 8.:imo oo8CQ0M80 0iltJOCQ30b013ob. (m.::>30 2). {<>6 .3nMIJ:(00oMo) e,.:i6m03boo" - Private (or direct)
oJrrim[JJ(J6'io - Mortgage bond - obo010 b.:ibob placement - ,'?3<>Lo.:i6o
0 .:i8Mo 30 o.:i, CQOoob
o8o@Jo6@Job JM6ooob o.3M0'>0J001. (01030 2Q). 0.:>8Mo 30 oob 0<>tioCQ 3<>, 001m .:i6 ·
'13o6<>6b(Jfil
- Capital budgeting - 'bo)- (m.:>30 19).
b.:io630L@JoGoM .3filMod8ooob oCQ0680'80J.:iGoob, 0d@Jo - Clayton Aqt - Ji>6M6o 1914
CQ" Clofilfio3ob .3filMoobo, Clo8M- J06M6o,
6i>Ji>!J<OOO) JM6J(JM06Goob J<>6M6b <>d3b
M.::>8CQ06080 CQ"0'8()d6oo.:i J.::>.3o-
.3filMod8ooob fil.:>bMoM03 CQ'> bb3.:i!,J:<.:>bb3<> CQObJMn8o6.:i-
12). (m.:>30 23) .
- Cost of capital - - Covariance - b@).:>@)ob@JoJ(JMO 8.:>8306000-

()J()0000L 0.:i6.:iJ3omo bb3.:iCQ0bb3.:i .:>b.:>b.:>3b MM dMMob Ji>300Mob

CQilf8o6.:i6Loooo'b 0. c:?ofiloo()- b.:>Mobbob CQM6:Jb <(ji>bo.:>60
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063nL@JMfilooo 01.:i60b8060 .:ifilo.::.6 fii>CQM6 (m.:i30 5).
b.:ij8006MOi>OO. {m.:i30 15). - Covenant - Clo'bc:?(JCQ30oo
,p6n0oE;>oli - Capital Market - o.:i'b.:ifilo, b.:iCQil(3 aonM
808CQ06.:ifil0Mob 3.:iS<MMOi> (8M85o- CQ<>(33ob .3oMMOOOo. ()6(.Qi>
'8000b 3.:iiJ<.:i 1 8o8o) '8o6.:i6L(Jfilo o6L@>fil()- Cloo6.:>Mfi(J6Mb b.::.8(JOi>M
8o68ooom, 'B"bo.:i6o 18 (Qi> 21).
2 {Qi> 19). .i0100c•QJO·r"io - Limited partner - .:i8b.:>6<>0Moob .3.:>fil@)6oMfilo
- Capital gain/loss - <>fil
bof.QO!J<O, dofi\001.:itQo .:id@)o- <>@J.::.Moob .3oM.::.CQ .3.:ifil@J6oMfilMoob
3000 .:ifl:.:it11o 0ob .:i6 30CQfilo 8.:imo .3om 306- (m<>3°
(01.:i3o 2). JM8J06rn:ib 8mE;>OC>OO - Total firm risk - ofilm i>J(.30"
- Capital rationing - bo@)(J.::>(30.:i, <>'bo (EPS), oo'b6obob filobJb
MMQ" bf.Qoo.:i (.:i6 00()308ob &o- <(j06.:i6b(JMO filnbJo. (m.:i30 16).
<Ylob/'boCQ.:i 'bc;3.:ifilob f.Q"5obno.:i) JM5liME;>o - Consol - (]3'>!.QM .:>fil<>-
f.Q.:i6.:ib.:ifil 30 o'bo .3nfiloMiJ<nL 0 .:i68.:i 3- LMCQOL .::.!'i1 85n'8CQJO.::> (<>01 .:>8MCQOb 8o8f'1dG030CQi>fi);
<(3Mfil8.:>oo. (m<>30 4).
Capital structure - JM8.3.:i6oooob
- 1mi1ll<0·1tr'l11ro>'>nr«) - Consolidation - Mfilo 06 80@;0 JM8-

oo'b6obob 8(J(.Q8030 CQ.::><(30fo6booob .3.:>6oob 3<>ofilmo0600<> b.:>bob JM8.3.:i-

(.:i6 .301M.3Mfil(3o.::.) Lobbo01, 6o<>CQ. JM8.3.:>6oooo 5i:J3J0ofi <>filbooMo;:,b.
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.:idooooom. (m.:i30 16 CQ" 17). 00fibb3<>3CQ00.:i ofilm8.:>6Jmoli 0.:>6, @Jofil8ofio O:JMOtJ8;:,
- Capitalization rate - f.QOb- (ofilmo JM8.3.c>fio.:i Mfioo0 Cl?" JMObM-
JP16@Job 0.:i6.:iJ3omo 8o8f.Qo5.:i<i1a
('.?OMO- ;:,Mo.:>6. (m.::.30 23).

751
 - Controlled dis- "a.""'"'"" d[!MOMQ'.;'.O - Credit period - Q?M(Y)OU
bursement - lrnu8n8.::., Jf'l8.3.::.6o.::. .::.3 '!i.::.36ou 3(Y)o.::., v6a?.::.
8ou fi:JJ:JOU o.::.6JClo (.::.6 o.::.6JoU 300?.::.oboC!?(Y)l> JM:JC!?08om
8.::.G 3.::.0?.::.'lin .::.C!?M:J (.::.6 (m.::.30 10).
C!?c;'OU 6.::.bn3.::.(';)Clo) 8.::.010 0c;'O.::.M:J00 .::.63.::.- JM[l(!;'0<§()6<>61006M60G O[J'(l"li[l6oli - Credit-scor-
Moo'lin, u.::.6.::.8 01.::.6bnoou fi.::.(';)0Gb3.::. 8f'lbC!?no.::. Jf'l8- ing system - l>ol>8n8.::., 3.::.8(Y)OtJ:J6no.::. o8ou
.3.::.6oou .::.63.::.(';)oCl'lin .::.8 C!?c:'Du. (01.::.30 9). 3.::.C1?.::.l>.::.ott3n8.::.0?, 3.::.l>Gn6 01() .::.(';).::. JM:Ja?o@Jo, l>b3.::.-
- Conversion price - :JM010 .::.dGoou a?<>ub3.::. on'B.::.unool>
<?J0Uo, 8obnC!?30010G .::.dGO:JOO 8obn<Q3om, 3.::.6u.::.'!ic;i3(';).::.3n6
Jf'l63:JM80Mno.::.C!? 'B.::.uo.::.6 JM:JO?OC!J(J60M006(Y)oi:Jl>. (cn.::.30 10).
030 Jf'l63:JM80M:J00a?O 'B.::.uo.::.60 J()d(Y)6oli 0 .::.6.::.J30010 - Coupon rate - n8o8n6C!Jou 8on(';)
Jf'l63:JM80GOOU .3M(Y)(3:J68ou 0.::.6.::.J3nmo
Jf'l:J'BoGon68 '!in. (01.::. 30 22). u.::.tl1-
UO!:QO!:Q:J onl>.::.o.::.8ouo
JM63n6'i@J.::.Goob JM[l<BOGoo60o - Conversion ratio -
(cn.::.30 4 (!?0 20).
.::.dGO:JOOU Mi:J(Y)Q?:J6f'lo.::.,
JM63:JM80M:J00Q? 'B.::.uo.::.6
- Leverage - b.::.Mji;:JOou
030