TUTORIAL SLIDES (AMF3871)

ACADEMIC CONSULTANTS
TUTOR: PINIAS IKECHUKWU SHEFIKA
23 May 2023 Ikechukwu’s Notes <1>
 TIME VALUE OF
MONEY

23 MAY 2023 <#>

IS COMPOUND INTEREST THE MOST POWERFUL FORCE IN
THE UNIVERSE?
HOW DO YOU GROW AN INVESTMENT OF $1 INTO $8 571 OVER 49 YEARS? YET, THIS IS WHAT WARREN BUFFETT
MANAGED TO ACHIEVE FOR HIS SHAREHOLDERS. NEARER TO HOME, ALLAN GRAY MANAGED TO DO EVEN BETTER
BY GROWING R10 INTO R142 100 OVER 39.5 YEARS FOR ALLAN GRAY’S INVESTORS. WHAT IS THE COMPOUND
RETURN THAT WARREN BUFFETT AND ALLAN GRAY ACHIEVED FOR THEIR SHAREHOLDERS AND HOW DO THEIR
RETURNS COMPARE TO INVESTING IN THE MARKET INDEX? WE WILL ANSWER THIS QUESTION AND ANALYZE THE
FORMULAE AND APPLICATION OF TIME VALUE OF MONEY PRINCIPLES TO REAL WORLD PROBLEMS. WE WILL
ALSO ANALYZE THE ROLE OF INTEREST RATES AND DETERMINE HOW TO VALUE BONDS.

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May 22, 2023
CONTENT

UNDERSTAND THE ROLE OF TIME VALUE OF MONEY IN FINANCE AND UNDERSTAND THE CONCEPT OF COMPOUND
INTEREST.

 USE FORMULAE, TABLES, FINANCIAL CALCULATORS AND SPREADSHEETS TO DETERMINE:

 THE FUTURE VALUE OF A SINGLE AMOUNT INVESTED TODAY;

 THE FUTURE VALUE OF AN ANNUITY;

 THE PRESENT VALUE OF A SINGLE FUTURE AMOUNT;

 THE PRESENT VALUE OF AN ANNUITY;

 THE PRESENT VALUE OF A PERPETUITY;

 THE PRESENT VALUE OF A GROWING PERPETUITY;

 THE PRESENT VALUE OF A CASH FLOW GROWING AT A CONSTANT RATE OVER A PERIOD OF TIME;

 THE PRESENT VALUE OF UNEVEN CASH FLOW STREAMS.

 DEFINE AND CALCULATE AN ANNUAL EFFECTIVE RATE.

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May 22, 2023
SINGLE AMOUNT

IKECHUKWU
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May 22, 2023
EXAMPLE

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May 22, 2023
ANNUITY

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May 22, 2023
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May 22, 2023
LETS GRASP WHAT WE HAVE LEARNT SO FAR

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May 22, 2023
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May 22, 2023
ASSIGNMENT (DUE 23:00, TUTORIAL DAY)

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May 22, 2023
 WACC

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CAPITAL STRUCTURE

 CAPITAL STRUCTURE IS THE MIXTURE OF LONG TERM FUNDS USED BY THE FIRM

 WACC IS A WEIGHTED AVERAGE OF THE COSTS OF DEBT AND EQUITY FUNDS.

 WACC IS USED TO CALCULATE NPVs

 FIND THE COST OF EACH COMPONENT OF EQUITY

 FIND THE COST OF EACH COMPONENT OF DEBT

 FIND THE MARKET VALUE OF EACH COMPONENT

 FIND THE VALUE OF THE COMPANY, AND CALCULATE WEIGHTS

 FIND WACC

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May 22, 2023
PRACTICE QUESTION

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May 22, 2023
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May 22, 2023
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May 22, 2023
ASSIGNMENT (DUE 23:59, TUTORIAL DAY)

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May 22, 2023
THANK YOU!!
YOURS IN ACADEMICS

P.I.H SHEFIKA

+264-81-560-8712

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