Financial management and time value of money covered in this

1. Financial Management
Notes from Regular Lectures-Chapter 1 & 2 (From Akash Sir Lectures)

2. Chapter 1-Introduction to Financial
Management
 Why Finance?-News discussion from the day
 What is Finance? Different Instances when Financial Management harmed or
uplifted a company
 What works at Individual level usually goes good at higher level, Discussion on
Personal Finance against Corporate Finance
 Different Approaches-Traditional and Modern Approach
 Objective of Financial Management-Profit Maximisation/Wealth Maximisation
 Significance of Financial Management , Roles and Responsibilities of Manager
 Task given-1 Collect SIP Related Brochure possible from nearby and
understand it 2 Read ET/any other standard business newspaper

3. Chapter 2- Time value of Money
 Newspaper and Current related Discussion
 Task 1 completed or not?
 Discussion on usual reaction of time and money correlation
 How SIPs give a growth and how can they be used for making a certain goal
completed in future? Example discuss
 Two methods-Future Cashflow & Discounted Cashflow model
 Four types under Future Cashflow-
 Single Cashflow
 Uneven Cashflow
 Equal Cashflow
 Multiple Cashflow

4. Sums
 Future Cashflow of Single Cashflow
 Find Future Cashflow of 5 years at Simple interest of 12% (amount 10000)
Answer: FV=PV(1+N*r)
=10000(1+5*12/100)
=10000(1+5*0.12)
=10000(1+0.60)
=10000(1.60)=16000
Calculate following:
 Find future cashflow of 10 years at Simple interest of 10% ( amount 5000)
 Find future cashflow of 5 years at Simple interest of 12% ( amount 15000)

5. Sums
 Future Cashflow of Single Cashflow
 Here , There will be Single cashflow each year however interest rate remains
same but interest is compounding one. (not simple)
 Find future cashflow when interest rate 8% and there are 8 years,amount-
10000
Answer: F.V=P.V*(1+R/100)n
=10000(1+8/100)8
=10000(1+0.08)8
=10000(1.08)8
=10000(1.8509)
=18509
Calculate following:
 Find future cashflow of 8 years at Compound interest of 9% (amount 10000)
 Find future cashflow of 5 years at Compound interest of 12% (amount 15000)

6. Sums
 Future Cashflow of Uneven Cashflow
 Here , There will be different cashflow each year however interest rate remains same and
interest Compounds every year.
 Here, Important assumption is that deposit is at end of the year
 Find future cashflow if following are cashflows for four years-Interest rate 10%
1st year 1500, 2nd year 2000,3rd year 2500, 4th year 3000
Answer: F.V=A1 (1+r)n-1 +A2(1+r)n-2+A3(1+r)n-3+A4(1+r)n-4
=1500(1+10%)4-1+2000(1+10%)4-2+2500(1+10%)4-3+3000(1+10%)4-4
=1500(1.10)3+2000(1.10)2+2500(1.10)1+3000
=1500(1.331)+2000(1.21)+2500(1.10)+3000
=1996.50+2420+2750+3000
= 10166.50
Calculate following:
 Find future cashflow if 1st year 3000, 2nd year 2500, 3rd year 2000, 4th year 1500, interest rate
11%

7. Sums
 Future cashflow of equal cashflow
 Here , There will be equal cashflow each year however interest rate remains
same & interest is compounding one.
 Find future cashflow if cashflow is rs 5000 for four years-Interest rate 10%
Answer: F.V=A[(1+r)n-1/ r]
=5000 [(1+0.10)4 -1/0.10]
=5000 [ (1.10)4-1/0.10]
=5000 [ 1.4641-1/0.10]
=5000 [ 0.4641/0.10]
=5000 [4.641]
=23205
So interest =23205-20000 =3205
Calculate following:
 Find future cashflow of 4 years if there is sip of 5000 rs each year. Interest
rate 8%
 Find future cashflow of 5 years if there is SIP of 2000 rs each year. Interest
rate 10%

8. Sums
 Growing Annuity Question
 Cashflow remains same but increases every year
 Here , One need to consider a certain % of salary and then substract rate
of return from growth of salary to reach at future value
 Find future cashflow if Annual Salary-10 lakh, Investment at 10%,
increases by 7% each year and investment is for 12 years. Rate of return-
10%
Answer: F.V=A*(1+i)n-(1+g)n/I-G
= 100000*(1+0.10)12-(1+0.07)12/0.10-0.07
=100000*(1.12)12-(1.07)12/0.03
=100000*(3.8959-2.2037)/0.03
=100000*(56.4066)
=5640660
 Calculate following:
 Find future cashflow of 10 years if there is investment of 20% of yearly salary
of 600000 which increases at rate of 9% each year Rate of return is 11%.

9. Sums
 Future Value of Multiple flows
 Find Future Cashflow if Cashflows is at end of each year for 3 years, cash
flows are different, interest rate 7% compounded annually.
 First year cashflow 1000, Second year 2000, Third year 3000.
 Answer:1000*FVF(7,2)+2000*FVF(7,1)+3000*FVF(7,0)
=1000*1.112+2000*1.064+3000
=1112+2128+3000
=6240
 Calculate following:
 Find future cashflow if Cashflows is at end of each year for 3 years, cash flows
are different, interest rate 7% compounded annually.
 First year 3000, Second year 2000, Third year 1000

10. Discounted Cashflow
 Four types in this:
1. Single Cashflow
2. Uneven Cashflow
3. Equal Cashflow
4. Perpetuity
 Single Cashflow
Sum: If a person receives 3000 rs after 8 years and Discount rate is 10%,Find PV
Answer: PV=FV(1/1+r)n
= 3000(1/1+0.10)8
=3000 (1/1.08)8
=3000 (0.4665)=1399.50