Micro 10

2. Microeconomics
Lecture 10
Basic Business Structure
Part 2

3. Questions?

4. Financial Statements
Income Statement
Balance Sheet

5. Income Statement
Revenue
- Expenses
= Net Income
What happened between two dates?

6. Balance Sheet
What I own
What is the status on a specific date?
What I owe
What I am worth
=
Assets
Liabilities
Net Worth
Must balance

7. Valuation
Stock Price x Number of Shares
$50 a share
1,000,000 shares
$50,000,000 value

8. Valuation
Share Price: $160
Share Outstanding: 5.165 billion
Value ?
$826.4 billion

9. wolframalpha.com

10. Accounting Profit
Explicit Costs
Explicit + Implicit Costs
Economic Profit

11. Finance
Time
Risk

12. Finance
Time - t or n
Risk - r or i

13. Foundation Finance
Formula
(1 + r )
n
r = risk rate
n = time periods

14. FutureValue?
Future Value = Amount Today x Factor
Factor is the Growth Formula
(1 + r )
n
r = rate
n = time periods

15. FutureValue?
(1 + r )
n
r = 10% or 0.10
n = 5 years
(1 + 0.10)5
(1.10)5
1.61

16. FutureValue?
Future Value = Amount Today x Factor
$161 = $100 x 1.61
Future Value is compounding
Future Value is multiplying

17. PresentValue?
Present Value = Future Amount ÷ Factor
Present Value = $100 ÷ 1.61
$62.11 = $100 ÷ 1.61
Present Value is discounting
Present Value is dividing

18. Finance
Unknown - Present Value or Future Value?
Must know rate and number of periods
Compute Factor with formula
(1+r)n
If FV multiply
If PV divide

19. Present Future
x Factor ?
÷ Factor ?
Factor Formula = (1 + r )
n

20. 1. Grandpa is going to give you $500 in 2025.
What is it worth to you today?Your discount
rate is 8%
2.You need to have $10,000 in 12 years.The
bank will pay 5% interest. How much should yo
deposit today?
3.You invest $1,000 today in a company that
grows 15% a year.What will it be worth in 5
years?
$270.13
$2,566
$2,001
Quiz