About Percent Funded in the Reserve Study
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A brief Slideshare of the Percent Funded calculation in the reserve study. A lower percentage equates to higher risk and a higher percent funded typically equates to a lower risk.
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Copyright © 2012 Pearson Prentice Hall. All rights reserve.docx
Copyright © 2012 Pearson Prentice Hall.
All rights reserved.
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Time Value of Money
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© 2012 Pearson Prentice Hall. All rights reserved.
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LG1 Discuss the role of time value in finance, the use of computational tools, and the basic patterns of cash flow.
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LG3 Find the future value and the present value of both an ordinary annuity and an annuity due, and find the present value of a perpetuity.
© 2012 Pearson Prentice Hall. All rights reserved.
© 2012 Pearson Prentice Hall. All rights reserved.
5-*
Learning Goals (cont.)
LG4 Calculate both the future value and the present value of a mixed stream of cash flows.
LG5 Understand the effect that compounding interest more frequently than annually has on future value and the effective annual rate of interest.
LG6 Describe the procedures involved in (1) determining deposits needed to accumulate a future sum, (2) loan amortization, (3) finding interest or growth rates, and (4) finding an unknown number of periods.
© 2012 Pearson Prentice Hall. All rights reserved.
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© 2012 Pearson Prentice Hall. All rights reserved.
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5-*
The Role of Time Value in Finance (cont.)The answer depends on what rate of interest you could earn on any money you receive today.For example, if you could deposit the $1,000 today at 12% per year, you would prefer to be paid today.Alternatively, if you could only earn 5% on deposited funds, you would be better off if you chose the $1,100 in one year.
© 2012 Pearson Prentice Hall. All rights reserved.
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© 2012 Pearson Prentice Hall. All rights reserved.
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© 2012 Pearson Prentice Hall. All rights reserved.
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This document provides an overview of personal financial planning concepts including:
1. The importance of financial planning and having financial goals for both the short and long-term.
2. How to create personal financial statements like a balance sheet and cash flow budget to evaluate one's financial position.
3. Key concepts related to compound interest and time value of money, such as how future and present values are calculated.
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Copyright © 2012 Pearson Prentice Hall. All rights reserve.docx
Copyright © 2012 Pearson Prentice Hall.
All rights reserved.
Chapter 5
Time Value of Money
*
© 2012 Pearson Prentice Hall. All rights reserved.
5-*
Learning Goals
LG1 Discuss the role of time value in finance, the use of computational tools, and the basic patterns of cash flow.
LG2 Understand the concepts of future value and present value, their calculation for single amounts, and the relationship between them.
LG3 Find the future value and the present value of both an ordinary annuity and an annuity due, and find the present value of a perpetuity.
© 2012 Pearson Prentice Hall. All rights reserved.
© 2012 Pearson Prentice Hall. All rights reserved.
5-*
Learning Goals (cont.)
LG4 Calculate both the future value and the present value of a mixed stream of cash flows.
LG5 Understand the effect that compounding interest more frequently than annually has on future value and the effective annual rate of interest.
LG6 Describe the procedures involved in (1) determining deposits needed to accumulate a future sum, (2) loan amortization, (3) finding interest or growth rates, and (4) finding an unknown number of periods.
© 2012 Pearson Prentice Hall. All rights reserved.
© 2012 Pearson Prentice Hall. All rights reserved.
5-*
The Role of Time Value in FinanceMost financial decisions involve costs & benefits that are spread out over time.Time value of money allows comparison of cash flows from different periods.Question: Your father has offered to give you some money and asks that you choose one of the following two alternatives:$1,000 today, or$1,100 one year from now.What do you do?
© 2012 Pearson Prentice Hall. All rights reserved.
© 2012 Pearson Prentice Hall. All rights reserved.
5-*
The Role of Time Value in Finance (cont.)The answer depends on what rate of interest you could earn on any money you receive today.For example, if you could deposit the $1,000 today at 12% per year, you would prefer to be paid today.Alternatively, if you could only earn 5% on deposited funds, you would be better off if you chose the $1,100 in one year.
© 2012 Pearson Prentice Hall. All rights reserved.
© 2012 Pearson Prentice Hall. All rights reserved.
5-*
Future Value versus Present ValueSuppose a firm has an opportunity to spend $15,000 today on some investment that will produce $17,000 spread out over the next five years as follows:
Is this a wise investment?To make the right investment decision, managers need to compare the cash flows at a single point in time. YearCash flow1$3,0002$5,0003$4,0004$3,0005$2,000
© 2012 Pearson Prentice Hall. All rights reserved.
© 2012 Pearson Prentice Hall. All rights reserved.
5-*
Figure 5.1
Time Line
© 2012 Pearson Prentice Hall. All rights reserved.
© 2012 Pearson Prentice Hall. All rights reserved.
5-*
Figure 5.2
Compounding and Discounting
© 2012 Pearson Prentice Hall. All rights reserved.
© 2012 Pearson Prentice Hall. All rights reserved.
5-*
Figure 5.3
Calculator Keys
© 2012 Pearson Prentice .
Engineering Economy Costing and Accounting
This document provides an overview of the course Engineering Economy taught by Dr. Shailesh Dewangan at BIT Mesra. The course covers topics related to time value of money, including simple and compound interest, cash flows, interest rates, and economic equivalence. It defines key terms and concepts and provides examples to illustrate time value of money calculations. The document also discusses how inflation impacts interest rates and economic decisions. References for further reading on engineering economy and time value of money are listed at the end.
Capital budgeting
Capital budgeting is the process of evaluating potential long-term investments and capital expenditures. It involves estimating cash flows, assessing risk, determining discount rates, and calculating metrics like net present value and internal rate of return to determine which projects to accept. Capital is a limited resource, so management must carefully evaluate projects and allocate capital to the most economically acceptable and profitable opportunities. However, net present value and internal rate of return sometimes select different projects, usually due to differences in project size, life, or cash flow patterns. Both metrics can be reliably used if the discount rate reflects true risk and an internal rate of return is reasonably achievable.
Capital budgetingtraining
Capital budgeting is the process of evaluating potential long-term investments and capital expenditures. It involves estimating cash flows, assessing risk, determining discount rates, and calculating metrics like net present value and internal rate of return to determine if a project is economically acceptable and should receive funding. Capital is a limited resource for companies, so capital budgeting helps management identify projects that will contribute most to profits and shareholder value. The key steps are to focus on incremental cash flows, account for the time value of money using techniques like NPV, and make go/no-go decisions on whether projects are worth undertaking based on their expected returns.
Introduction to financial maths for real estate appraisal short b w (2)
This document provides an introduction to calculating net present value (NPV) for real estate investment projects. NPV is the standard technique used to determine if a project is worth undertaking. The example provided calculates the NPV for a hypothetical investment in a £1,000,000 London property that will be rented to students. The calculation discounts future cash flows like rental income and property sale proceeds at a target 10% annual return. The resulting NPV is negative, indicating the investment should be rejected based on the assumptions. NPV analysis requires estimating cash inflows and outflows over time and discounting them to determine a project's present value.
Capitalbudgeting
Capital budgeting is the process of evaluating potential long-term investments and capital expenditures. It involves estimating cash flows, assessing risk, determining discount rates, and calculating metrics like net present value and internal rate of return to determine which projects will provide the highest returns and contribute most to firm value. The key challenges are that capital resources are limited, projects have different sizes, lives, and cash flow patterns, so the net present value and internal rate of return methods do not always agree on the best project selection. Reliable capital budgeting requires using realistic discount rates that account for project risk when applying net present value, and ensuring projected internal rates of return are reasonably achievable.
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Copyright © 2012 Pearson Prentice Hall. All rights reserve.docx
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About Percent Funded in the Reserve Study
- 1. Reserve Study Presentation: About Percent Funded Joel L. Tax, RS PRA Reserve Specialist jtax@reservedataanalyst.com (866) 574-5115 ext. 704 www.reservedataanalyst.com
- 3. What is Percent Funded?
- 4. Percent Funded: The Formula Example: Paint Project Costs: $100,000 Age of Paint: 1 years Paint Useful Life: 10 years Reserve Account Balance: $5,000 **This community has half of the amount they ideally should have at this point in time.
- 5. Being 100% Funded In 10 Years a Paint Project: $100,000.* *Interest and inflation omitted for simplicity 100% Funded = on track for project expense. ReserveAccountBalance
- 6. Being 50% Funded In 10 Years a Paint Project: $100,000.* *Interest and inflation omitted for simplicity They are @ 50% Funded = Shortfall ReserveAccountBalance
- 7. Percent Funded Projections *Percent Funded calculations will fluctuate up and down over time based on annual contributions and project expenses occurring.
- 8. Common Percent Funded Ranges *Typical goal of the Reserve Analyst is to create funding model that increase the percent funded into a “Good” funding range over time.
- 9. Risk of Low Percent Funded K S I R Higher Risk Of: •Cash Flow Issues – Loans, Special Assessments, Emergency Financing •Deferred Maintenance •Marketability & Aesthetic Appeal Issues *Under 30% Funded equates to a much higher risk
- 10. Considerations for Percent Funded
- 11. Do you have any questions? ???Joel L. Tax, RS PRA Reserve Specialist jtax@reservedataanalyst.com (866) 574-5115 ext. 704