Quantitative Methods in Finance

129.90 -87.84 -11.52 30.54 -10.38 20.16
Байду номын сангаас
1- 7
Baldwin Example
Table 7.4 Incremental Cash Flows for the Baldwin Company (in $ thousands)
Year 0
Year 1
Year 2
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Baldwin Example
Table 7.1 The Worksheet for Cash Flows of the Baldwin Company (in $ thousands) (All cash flows occur at the end of the year.) Year 0 Investments: Bowling ball machine Accumulated depreciation Adjusted basis of machine after depreciation (end-of-year) (4) Opportunity cost (warehouse) (5) Net working capital (end-of-year) (6) Change in net working capital (7) Total cash flow of investment: [(1) + (4) + (6)] Income: (8) (9) (10) (11) (12) (13) Sales Revenues Operating costs Depreciation Income before taxes [(8) + (9) + (10)] Tax at 34 percent Net income (1) (2) (3) -$100.00 $20.00 80.00 -150.00 10.00 -10.00 -260.00 $52.00 48.00 $71.20 28.80 $82.72 17.28 $21.76 $94.24 5.76 150.00 0.00 21.22 192.98 Year 1 Year 2 Year 3 Year 4 Year 5
MBA 505 G Quantitative Methods in Finance Session 1
1. Overview 2. Capital Budgeting Problem Baldwin Example (from CF) First Assignment 3. Preview of Hypothesis Testing
Hand in physical copy at beginning of class Also submit a copy through Compass, including your spread sheet in Excel.
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Overview
Topics • • • • Tools • Morningstar Direct • Morningstar EnCorr • Crystal Ball Hypothesis Testing Regression Analysis Portfolio Optimization Simulation
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Course Text
Quantitative Methods for Investment Analysis, 2d edition (“QIA”) by Richard De Fusco et al. (CFA Institute). The identical material (but omitting end-of-chapter problems) is also published under the title Quantitative Investment Analysis. Supplementary texts We may refer to information in Corporate Finance by Ross, Westerfield, and Jaffe, (used in Professor Kannan’s Finance course) You may want to review material in Essential Statistics in Business & Economics by Doane and Seward, (used in Professor Palekar’s Statistics course).
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Purpose
Preparation for second year MBA courses in Finance Practice in using statistical and quantitative methods in finance applications Introduction to tools for financial analysis
Final exam (25% of grade)
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Procedures
Lecture notes, assignments, handouts available on Compass Assignments must be submitted through Compass as well as through hard-copy in class. Earlier assignments to be done individually, final assignment is a team assignment. Four-person teams (pick your own) Training sessions on tools in Market Information Lab (MIL) 1st Floor of BIF. Sign-up for times on Compass
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Structure of Course
Five assignments (each counting for 15% of grade) 1. 2. 3. 4. 5. Capital Budgeting Hypothesis Testing on Mutual Funds Regression Analysis and Asset Pricing Portfolio Optimization and Mean Variance Analysis Simulation and Takeover Valuation
$100.00 $163.20 $249.72 $212.20 $129.90 -50.00 -10.20 39.80 -88.00 -145.20 -14.69 60.51 -29.01 75.51 -133.10 -22.98 56.12 -87.84 -10.38 31.68
(5)
Total cash flow of investment [line 7, Table 7.1]
10.00 0.00 0.00
16.32 -6.32 -6.32
24.97 -8.65 -8.65
21.22 3.75 3.75
100.00 -50.00 -20.00 30.00 -10.20 19.80
163.20 -88.00 -32.00 43.20 -14.69 28.51
249.72 212.20 -145.20 -133.10 -19.20 -11.52 85.32 67.58 -29.01 56.31 -22.98 44.60
Year 3
Year 4
Year 5
(1) (2) (3) (4)
Sales revenue (line 8, Table 7.1) Operating costs (line 9, Table 7.1) Taxes (line 12, Table 7.1) Cash flow from operations [(1) + (2) + (3)]
-260.00
0.00
-6.32
-8.65
3.75
192.98
(6)
Total cash flow of project [(4) + (5)]
-260.00
39.80
54.19
66.86
59.87
224.66
NPV @ 10%
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51.59
First Assignment Due March 30